Essentially, budgeting is a tool which should be utilized to ensure that you never spend more than what you have. Budgets are planning tools for both short term and long term finances. Sadly, most individuals interpret budgets as a form of punishment which deprives them of things similar to the way we view a diet. It is truly unfortunate that we view diets as such because much like budgets, they are simply plans to managing your eating and spending. Some find it helpful to call it by a different name. If you find this to be an improvement, try referring to your budget as personal financial planning.
A budget is a crucial component of financial success. Budgeting is not hard to implement and is not restricted to those with a limited income. Although, it does make life a bit easier for individuals and families with incomes and expenses of virtually any size to make better decisions when it comes to allocating their cash. Budgeting can also help you save for retirement, unexpected emergencies such as car or home repairs or any number of things. Having a sound budget set into place allows you to know precisely where your money goes allowing you to breathe easier about your finances.
Budget Basics
Though most consider the term “budget” as something which we utilize when we are low on funds, a budget has much more to offer than that. Whether you are a struggling college student or a professional with a family, a budget can help you manage your expenses against your income. Budgets can even be formulated to create a form of assurance for the allocation of paychecks along with emergency savings, retirement savings repayments for student loans, rent and utilities or even as rewards for all of your hard work like a dinner out on the town. Couples often use a budget to plan a method of affording their wedding or purchasing a new home or even preparing for a child. Despite the popular association of the term with low or limited funds, budgets are truly beneficial to everyone.
Long Term Projections and Short Term Projections
Budgets can assist you in the proper planning for both short term and long term expenses. Some short term examples include monthly bills, mid-term expenses and more. Long term expenses refer more to large items like purchasing a home, paying for a child’s college tuition or putting away money for retirement. With an organized spreadsheet in front of you that accurately illustrates the amount of money you expect to accrue over the coming months or even years along with how much of that will be deducted for living expenses, you will be able to see precisely what is left each month allowing you to project what you can spare. In addition, these numbers permit you to save properly for major goals.
In the case that you are not happy with these numbers, you now have the chance to take appropriate steps towards improving your overall fiscal situation. This could mean paying off credit cards in order to enhance your monthly income or even seeking a promotion or new employment prospects to make the salary you need and deserve.
Crisis Prevention
In the instance that substantial expenses were to arise out of the blue, you will need to have a budget to get you through such difficult times. One example would be you begin to experience severe dental pain and your dentist suggests you have a root canal procedure performed. However, your insurance requires you to pay a five hundred dollar fee. This is where a budget comes to your rescue in most cases.
If you have not started your emergency savings yet or they have been depleted by some other recent unfortunate occurrence, a budget can still be your solution to distinguishing what expenses you may be able to put off or simply shift in order to pay for life’s unexpected events. Keep in mind that most emergency expenses will have some leeway with deadlines. You will likely be able to postpone such costs for at least a couple of weeks or even taken care of with a credit card when necessary. Just remember to pay off the debt in full when the bill arrives so as to avoid paying high interest rates.
Stretching Your Money
The right budget can help you to better track your expenses, both large and small. It is a means to uncovering a lot of crucial data pertaining to your life. This comes in handy when you notice expenses which are costing you more than you had expected. These costs can be altered to make your money go further to pay for your goals.
Planning for Change
Budgets are an essential device allowing you to model your purchases in advance. This keeps you from questioning where all of your money has gone when it comes time to pay the mortgage. These tools are simple plans allowing you to finally achieve financial freedom. Everyone wants to be able to retire and enjoy it with some extra padding in the bank account. However, there are many expenses on the way to retirement which can easily be forgotten such as having a child, starting a business, college tuition or even vacations.With a sound budget, you can achieve all of your goals.
Money Tracking Systems
A basic notebook and pen is the most inexpensive option when developing a budget. You can carry it quite easily at any time regardless of electrical failures. Keep in mind however that notebooks can become misplaced or even ruined as they are only made of paper. This is one of the simplest methods to tracking your spending and saving patterns as a beginner to budgets.
For those who are more tech savvy, a computer generated spreadsheet like those offered by Microsoft Excel can effectively track your income and expenses making it less likely to commit mistakes. This form of budget tracking can easily do mathematical calculations for your annual spending. It can even narrow your estimated expenditures down to your monthly costs.
Much like Excel spreadsheets, there are numerous other financial software options available. Though these can cost a bit initially, they do eventually pay for themselves. On the other hand, they often do a great deal more than a spreadsheet by keeping track of your bank accounts and other investments without having to log these accounts yourself. Lastly, online software is another option for personal financial planning. Some of the programs offered are even free along with the added advantage of being accessible anywhere you are. Keep in mind that online systems can in fact be subject to certain weaknesses such as exploitation. For the most part though, online budgeting software proves beneficial to calculating balances for savings and groceries or bills.
Keep Track of Everything
No matter how difficult it may become, all expenses should be effectively tracked. It can be easy to calculate funds spent on your rent or mortgage. However, our other costs may be incredibly complicated if we do not accurately log our receipts. One helpful tip is to use cash for smaller expenses. This can prevent overspending in some cases. You will also want to keep your budget updated on a daily basis so as not to forget anything.
Utilize Proper Descriptions
You will need to write down all of your expenses regardless of how big or how small. These purchases should be categorized into particular areas as well. Consider budgeting monthly as opposed to per pay period. This will allow you to see a bigger picture than your simple bi weekly check while granting you a clean slate each month.
Plan for Fixed and Variable Expenses
It is important to remember that a fixed expense would be something like your rent or health care costs. A variable expense would consist of fluctuating costs such as utilities or gas. There are some expenses which can fall into either category depending on your particular situation like groceries. Never forget to also budget for expenses that occur but a few times a year. These can include birthdays, Christmas, car insurance or doctor’s appointments. When you plan properly in advance for such costs, you can easily pay for them as they happen without getting yourself into debt.
Though budgeting can be very different on a steady income when compared to an irregular income, in both cases, they are extremely advantageous. For those who are paid by the hour or even on a commission rate, self-employed or seasonal workers, you can still successfully project your income. It can take a lot more effort due to the irregular pay rates and income variables, it is still possible and helpful. Regardless, you will likely have a set of certain expenses no matter your income which is why a budget remains the best way to stretch your hard earned cash. The best suggestion for irregular incomes is to utilize the minimum amount of money you make into your budgeting equation.
