Budgeting is a fundamental step in making strong financial decisions. That’s why, in this post, I am going to take a much deeper dive into the importance of budgeting, and why it is such a vital part of your financial well-being
It’s important that you develop a budget using your net income as it reflects your take home pay after taxes and dedications. A common mistake people make is developing a budget off of their gross income. It’s a mistake because you're budgeting money you never possessed. Remember your potential savings is the difference between your net income and your expenses.
When developing a saving plan ask yourself these questions:
1. Are there any variable expenses that you can reduce or eliminate?
2. Is there anything you spend money on that you could eliminate and apply towards saving?
Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt.
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you have enough money to do the things you need to do or would like to do.
If you don't have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you.
People usually cringe when they hear the word budget because it sounds like a fun suck. After all, don’t people who budget live boring lives? Not so!
The first step to creating your first budget is to set goals for your spending. For example, is it your goal to spend less than $50 a month on takeout? Write it down.
Then, after your first few months of using a spending tracker, you can measure your goal with your reality. If you come up short, that’s ok. That’s why it’s so important to track your spending. We usually spend more than we think on certain categories. Tracking that can help cure some bad financial habits.
1) Pencil and Paper
Don’t dismiss old school methods. Plenty of people have and still do stick to a paper budget. The biggest benefit here (besides not needing access to technology) is that physically writing things down requires an active brain. Active brains are really quite helpful when you’re dealing with money. The inferior side to this method is pretty clear: Most of us don’t keep up with paper copies of stuff these days. When you get a receipt, you have to hold on to it until you can get it to your budget and write it down. Sometimes receipts are misplaced. Sometimes the cash you spent on a quick trip to the dollar store is forgotten. Sometimes a few debit card purchases aren’t written down quickly by one spouse or the other. Any of these communication breakdowns can lead to a busted budget.
2) Use of Applications
There are many apps to track and calculate your budget but if you are like me, not a big fan of apps A spreadsheet is another money tracking tool. You can find a variety of budgeting templets online. This is just more smarter, more effective, clear and organized way of keeping track of your spending. You just have to learn some basic functions and formulas of excel to excel your budget. Spreadsheet gives the convenience of data collection and easy interpretation.