What is a budget? A budget is a plan for the way you will use or spend your money each week, month, or year. Budgets are often used to make sure that you have enough money for things that are really important and not just spending all of your money on every little thing.
To make a budget, calculate how much income and expenses (other than debt repayment) you’ll need over the next 12 months. You may find out that it’s unrealistic for this time in your life to have a very detailed spreadsheet. If that’s the case, start with what you can do and build it up as you get more comfortable with using a budget.
A financial blueprint helps you answer two questions: what do I want my life to look like in five years from now and how can I get there with the amount of money I currently have? If you’re starting from scratch, building a budget as well as an emergency fund should be your first priority.
The financial experts at iCASH, a Canadian online lender state “The traditional rule of thumb is to spend at least 50% on needs, 30% on wants, and 20% on savings. This is a general guideline to follow but as soon as you find yourself consistently spending more than that amount, it’s time to make an adjustment.”
How to make a household budget?
To make a household budget, calculate how much income and expenses (other than debt repayment) you’ll need over the next 12 months. Start by calculating your total monthly income and all your monthly expenses excluding the debt you’re paying off every month. It’s also a good idea to include all the variable expenses that can happen from time to time, such as gifts for birthdays or weddings, and vacations.
Next, subtract that amount from the total amount of money you have left, which is your discretionary income. The remainder will give you your “needs,” “wants,” and “savings” amounts so you can work towards each one at different times in the year.
Make sure you distinguish between needs and wants because they are not always the same thing. Stuff like cable TV, cell phone service or expensive dinners out are things that you don’t have to spend money on to survive. Needs include housing, food, and transportation costs.
Once you have calculated your household budget needs amount, write it down and make sure it’s realistic for you — especially if you’re living alone or supporting a family on one income. The key is to not overspend on your needs and end up with no money left for savings, emergencies, or “wants” throughout the month.
If what you calculate seems too low, think about whether there’s anything that you can cut. For instance, maybe cutting back a few dinners out each month or having one less coffee every day could make up the difference.
Try to use the same budget you created for at least three months before making any major changes, so you can really see if you can afford to use this new financial plan. The goal is not to make this a stressful exercise, but rather to teach yourself to plan of time.
Why should I have a budget, and what are the benefits of having one?
According to Be The Budget, a good reason to have a budget is “budgeting is important because it helps you control your spending, track your expenses, and save more money”.
You may want to make a financial plan because it helps you plan for the future and spend money on things that are important, like food and rent. You can also create a forecast, so you don’t overspend on items you don’t really need or want. You may have heard of people running out of money before the end of the month and it is not fun to feel like you are always broke and have no money. Having a budget can help you avoid this.
Another reason to have a budget is to help you live on your own and not be dependent on others for money. It also teaches you that although you may think something is important, sometimes it isn’t worth spending all of the money in order to get it. It can teach you that it is ok to say no to things that aren’t important and don’t fit into your budget.
The importance of tracking your expenses and income
Many people don’t know where their money is going. Tracking your income and expenses helps you keep track of your spending habits.
You’ll also be able to make changes if necessary to curb any bad spending habits that creep up. It’s also a good idea to track your income and expenses to see how much money you have coming in each month. This can help you make changes in your lifestyle if needed, like having a side job, starting a savings account, or getting rid of some of your monthly bills.
Budgeting is about being prepared for the unexpected emergencies so that you’re not caught off guard when they happen. Let’s face it, there may be a time when you will need more money than what you have in your bank account. Whether it’s gas/electricity, car repairs, or something else; you never know what might happen and being prepared is better than being sorry.
If you don’t track your expenses and income, how will you be able to make sure that you’re saving enough money for your monthly bills?
There are many helpful tools available to you that can help you track your spending habits. Mint is an example of such free software that allows you to set up budgets and keep track of your spending habits.
This tool has been found to be useful in helping people understand how they spend their money and where they can make changes to save more. If you are wondering where your money goes, this tool can help you. However, you need to be committed to using it on a regular basis for it to have any benefit.
If you are serious about tracking your spending, then the best way is to write your budget down. It will be easier for you to follow if you write it down than if you try to remember what money has been spent. All that is left is to stick with it and watch how your spending habits change over time as well as the amount of money you have saved.
The importance of saving money in order to reach financial goals
The importance of saving money in order to reach financial goals cannot be overstated. It is the most important skill for achieving financial success in life. If you have a lot of debt or high expenses, it is imperative that you take aggressive steps to cut back on your spending; otherwise, it will be difficult to save enough for your future goals.
It is never too early or too late to start investing in your future by saving money and making wise purchases of stocks and bonds. Even if you just invest a little bit each month, you’ll be amazed at how much extra income you can accumulate over time. The earlier you start, the richer your retirement will be.
You know the old saying, “A penny saved is a penny earned.” Well, it’s true. If you’re not investing in your future by saving money and making wise purchases of stocks or bonds while you can afford to do so, then what are you waiting for?
Setting a budget will help with this process because it forces us to limit our spending on things that we don’t need in order to make room for investments that we may want later down the road when they’re more affordable.