What Is a Budget?
A budget, in the broadest sense, is the idea of allocating money and time for a purpose. The process of planning the amount to be spent is already considered to be the act of budgeting. Creating one causes you to pay attention to the little details and expenses you make with your hard-earned money. By doing so, you are ensuring your money to work in your favor.
How to Create an Effective Budget
Not all people keep track of their budget, including low-income ones. Around 30% of the earth's population are the only ones who budgets, and some would even quit after a few days of listing their expenses. Studies even show that the majority of low-income families do not engage in budgeting practices due to unawareness. But operating a household without a proper budget is like operating a business without a proper plan and direction. Which is why 100% of them insisted and agreed that there is a high importance in budgeting.
1. Determine Your Reasons for Budgeting
Before anything else, keep in mind to determine the purpose why you budget. What goals do you plan to achieve when you budget? Ask yourself this question and think of possible reasons to do it. It is very important to keep yourself motivated in this task as well as to keep your goals realistic and attainable to carry it out.
2. Choose the Right Budget Plan
There are many ways to budget, but it is best to choose the one you find suitable for your preference. Finding the right budget plan for you is the key to balancing your expenses as well as saving the amount you wish to meet. Doing the 50/30/20 budgeting ratio is known to be a balanced and comfortable way of budgeting as it allows you divide 50% for essential things such as food and housing, 30% for your choice of lifestyle, and lastly, 20% on your financial priorities.
3. List All Your Expenses
Once you have chosen your budget plan, the next thing you need to do is to list all your expenses. This includes your daily inflow and outflow of cash, as well as your monthly income. Use spreadsheets, notebooks, and apps to keep track, or download our ready-made budget templates to list all your expenses. By doing so, you are able to keep track of your spending habits.
4. Track Your Expenses per Month
Next in line is to track all your expenses per month. To avoid overspending and bad budgeting, it is a must to keep track of your monthly spending habits. Now that you know your current budget, you should go back to your goals at the beginning and check whether these goals were achieved or not. Remember not to settle for unrealistic expectations because this would only leave you frustrated at the end.
5. Alter a Few Things in Your Budget
You can alter your spending habits once you have reviewed your monthly expenses, but keep things balanced. Don't cut your budget for food and recreation for the sake of saving. It is also good to relax and treat yourself once in a while even when saving. There are other ways to refrain yourself from spending such as doing the envelope system where you divide an amount in a labeled envelope or you can automate your payments. The lesser money you see, the lesser amount you spend.
6. Recheck Your Budget
Lastly, always review your budget every now and then whether it is going smoothly or not. Check for changes that occur in your budget. If you have discrepancies, apply corrective measures upon them. Change is the only thing that remains constant, so never give up and continue to budget for your future. Rest assured that your hard work will pay off in the end.