Have you ever thought about why we really need a monthly budget? Let’s look at it this way, if you got into your car and didn’t have a destination, you’d get nowhere. If your end goal is to have a certain amount of money saved at the end of the month, you have to plan for it.
A monthly budget helps us achieve our financial goals, be it long term or short term. It also gives us a fair idea of where we stand financially. Setting up a monthly budget in particular leads to better savings in the long run and a financially secure future.
The process of budgeting involves creating a proper spending plan of your income. A great strategy makes sure that you have enough saved for a rainy day. That requires you to stay disciplined and so we’ve got some helpful tips to make that happen for you up next.
Make Note Of Your Monthly Income
This is the best step in planning out a monthly budget. Your income amount will basically determine the rest of your budget so make sure to include all sources of income. If your income keeps varying every month, a great budgeting practice is to pay yourself a salary.
This will require you to decide on a monthly “salary” around which your budget will be based and you can save the extra money. You can use the conversion table to determine your average monthly income.
Write Down Your Monthly Expenses
The key step in order to make a perfect monthly budget is to keep a track of all your expenses. This step will require you to brainstorm and think about what you mostly spend your money on. Include all the necessary items that you require like groceries, gas and miscellaneous.
Also, your expenses can be broken down into fixed and variable expenses. Fixed expenses remain the same every month like car’s payment, rent, school loans, etc. On the other hand, variable expenses differ every month such as your car’s maintenance, food, electricity and others.
Track Your Spending
Most financial experts advise tracking your spending activities for at least 30 days to get a definite idea of your spending pattern. A helpful way to track your expenditure is using apps like Dollarbird, and PocketGuard.
Those apps track your spending by linking your credit cards and bank accounts. You can also keep track of the expenditures by noting it on paper every day. This way you can always have a look at it and minimize the expending wherever you can.
Choose the Right Type of Budget
Now that all your expenses are taken care of, it is time to actually draft a budget. You will have to select the budget which seems perfect for you. One of the strategies followed by many people across the world is a 50-30-20 budget.
As per this system, 50% of income is assigned to essential needs like rent, food, debt payments, etc. Next, 30% of income is allocated to hobbies and pleasures like traveling and entertainment to name a few.
And finally, the 20% that is left is given towards savings. This flexible approach and can be followed without limiting yourself too much.
Review Your Budget Plan
It is very important to review your budget regularly on a monthly basis. This ensures that you remain right on track. Also, you must regularly make a comparison of your monthly expenses with somebody you know. This way you can motivate each other to stick to the plan.
Many times you may expect a hike in your salary, your expenses may increase or you may have achieved your goal and want to work towards a new one. All these things tend to bring about a few changes in your budget which you must be careful about.
You have gone through all the best practices of the budgeting process. All that you require now is self-discipline and the will to stick to a budget. So, what are you waiting for? Keeping all the points in mind, start budgeting today and secure your future.