Want to know How to budget your money sensibly? Here is how to budget like a pro
Whether you believe it or not, the first step to getting control of your finances, is to create a monthly budget. A monthly budget will help you understand how you spend your money every month.
But budgeting money is hard. Nobody wants to budget money. Everybody like to have money to spend on their wants and needs without constraint.
But when you work hard for a limited resource, the need to budget is just as
serious as making the money.
Budgeting money for beginners can be just as boring as it is overwhelming, but with practice and some patience, you can develop the habit of compulsory budgeting and finally live debt-free.
Let’s dive into some meaningful budgeting process steps.
What is a budget?
A budget is a calculated and itemized summary of all your income and expenses for a given period of time. The aim of a budget is to help you track your spending, manage your money and help you set long-term financial goals.
Budgeting is one of the most important life skills that can help you set realistic financial goals towards a debt free life.
Most people struggle with money related problems because they do not know how to manage or budget their money properly even when they earn enough to give them a better life.
A monthly budget will help you;
- Avoid debt or pay off debt
- Increase your finances
- Buy your dream house
- Buy an affordable car
- Save more money
- Appreciate passive income
- Fund a side hustle.
- Discipline and Accountability
How to make a budget that works?
How to budget your money sensibly?
1.Get together all your financial information
You need a real-time review of all your financial information, which includes;
- Debts ( loans, credit cards)
- Regular utilities like gas, water, electricity, phone bills, repairs.
- Personal needs like food, clothing, healthcare, toiletries, self care
- Insurance policies (car insurance, house insurance, health insurance, pets)
- General wants (hobbies, Subscriptions, travel expenses, gym membership, cinemas, Spa)
2. Calculate all your monthly income
You need to have an idea of all your monthly income before you can start budgeting properly.
Monthly income could be your monthly salary, any raise or benefits, Investments, side hustles, pensions, gifts or rewards.
If you are not a monthly earner ( i.e business owner, self-employed, passive income earner), you can get an idea of your monthly income after all taxes and business costs are paid.
This will give you an idea of your monthly earnings and save you from dipping your hands into your business core finances.
The idea is to understand that any extra money you get from whatever source should be put together as your monthly income. This idea will help you better manage your money.
If you feel the money you are getting in the form of raises, gifts or benefits are not part of your monthly income, and safe to blow away, then you’re not utilizing your earning potential.
But when you add up all of these sums, they will bulk up your monthly income and help you budget properly and save every extra dollar.
3. How to Budget Your Money Sensibly-Decide what type of budgets you want to make
There are different types of budget methods that can help you properly cater for your needs.
The most commonly used budgets methods are the zero-based budget and the 50 30-20 budget method.
A zero-based budget: A budgeting approach popularized by Dave Ramsey which involves making income minus outflow equals =$0.
With a zero-sum budget, every dollar you have is assigned a purpose, with some of those dollars going into savings and the rest assigned to different spending categories.
This is a restrictive form of budgeting and it’s not right for beginners but it can help more advanced budgeters to trim down spending and hasten debt repayments.
The 50-30-20 budget method: This is a flexible budgeing method popularized by Elizabeth Warren (D-Mass)-which explains, allocating 50% of your income towards needs such as food, rent, debt payment.
Assigning 30% for transportation, entertainment, and finally the 20% goes into savings. This is the best budgeting method for beginners who are just getting used to the idea of budgeting money.
Automating your savings is the key to making this budget system work so you don’t ever short change yourself.
4. Design your budget
After putting together all your financial information, then it is time to design your monthly budget.
Start with your fixed expenses, like the things you pay for each month, expenses like rent, mortgage, insurance, health.
Enter your variable monthly expenses like food, electricity, gasoline, phone bills, water, entertainment, self care, subscriptions.
You can get a hold of your bank statements to understand the things that you pay for every month.
5. Budget for your big money goals
You may have one big/off purchase to make, try to include that in your budget.
You may want to acquire a big/one time purchase in a month, few months or in a year to come- Still budget some money for it every month.
When you have a budget in place, it is a great idea to always review regularly so you can add, reduce and adjust as needed.
The idea is to help you balance within your budget limit, stick to the budget and effectively manage your monthly inflow.
During reviews, you should check if;
- Your budget actually match your spending (are you spending within your budget)
- Your income increased or decreased in a given month
- Are there items or expenses you no longer need or want
- The general cost of living increased or decreased
- Have your other sources of income increased or decreased
7. How to Budget Your Money Sensibly- Stick to your budget
Avoid the temptation of spending out of your budget. Try to maintain discipline.
Only spend money out of your budget when it’s absolutely necessary or a life-threatening situation.
You can learn to start sticking to your budget by clearly understanding your wants from your needs, cut out unnecessary entertainment, shopping, drinks, friends, and so many other excesses that are making you spend money and digging a hole in your budget.
Learn different ways to save money.
Below are different ways to save money.
- How to Save Money From Your Salary Each Month
- How to Save Money On Energy Bills
- 13 Ways to Save Money as a Stay at Home Mom For 2021
- 14 Tips On How to Save Money On Groceries
- 50 Minimalist Lifestyle Tips That Will Save You Money In 2021
- 21 Tips to Start a Low Waste Life and Save More Money For 2021
- How to Save Money Each Month With These 10 Easy Tips
- How to Save Money On Food This Year
- How to not spend money and save In 7 Steps
- 7 Personal Finance Hacks $ Tips Guaranteed to Make You Wealthy
- 50 Money-Saving Challenge to Start According to Your Earnings
- I Stop Spending Money On These 10 Things (saved me $3000 in 6 months)
- How to Save Money On Gas or Fuel
In a quick summation, to know
How to budget your money sensibly in 7 Steps?
- Get together all your financial information
- Calculate all your monthly income
- Decide what type of budgets you want to make
- Design your budget
- Budget for your big money goals
- Review your monthly budget
- Stick to your budget
Now that you’ve learnt how to budget your money, it’s time to set things in motion.
At first, budgeting may seem daunting and ineffective, but if you take the process seriously with a positive determination, you’re well on your way to finally getting your finances in order and a few steps towards a debt free life.
Start budgeting your money today so you can be financially independent retire early FIRE.
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