How to Budget Your Money
Tips For Budgeting Your Money
When it comes to budgeting your money, most people find that money seems to slip through their fingers as quickly as a fistful of sand—here one moment, gone the next.
You may have the best of intentions when payday rolls around, but without a solid budget, it’s difficult to put those plans into practice.
Fortunately, proper money management is an acquired skill that it’s never too late to learn, and at Bankruptcy Canada, we’re here to offer a helping hand as you set yourself on a path toward long-term financial stability.
Follow these guidelines on how to budget your money to create a comprehensive and personalized budget.
How to Budget Your Money: Set Goals You Can Actually Achieve
Most everyone would love to buy a Ferrari and live in a mansion, but is that a realistic dream based on your income?
If your hopes are far too lofty, you’ll become disgruntled when your budgeting efforts don’t pay off quickly; try to think about more specific, short term goals.
Perhaps you have some outstanding debt you would like to pay off, or maybe you’re hoping to save for the down payment on a house.
Think about how you would realistically like your finances to look in one year, and establish concrete goals based on that benchmark.
When you have an endpoint in mind, you can also institute various checkpoints throughout the year.
Say that you’re hoping to raise your credit score by 50 points in a year thanks to proper budgeting; it’s a good idea to check-in that you’re on track to meet that goal at the 6-month mark, and even again around 9 months.
Track Your Monthly Income and Expenses
It shouldn’t be too difficult for you to figure out how much money you make each month—you may know even that answer off the top of your head.
However, you’re bound to be shocked when you begin to tally exactly how much you spend on a regular basis.
Certain bills are unavoidable, such as rent, groceries, utilities, and medical expenses, but others are not.
Comb through your recent expenditures and write down how much superfluous spending you’ve done on things like going out to eat, or buying new clothes to gauge your current level of money coming in vs. money going out.
Identify Where You Can Cut Spending
Once you have outlined where all of your money is going on a regular basis, try to be as discerning as possible in classifying which areas of spending are needed and which areas are wanted.
You might enjoy going out to lunch three times a week, but you can save money by packing your own from home.
You might want to meet up with friends every Friday night, but opting for a glass of wine and a book on the couch sometimes is far more economical.
When you reframe your thoughts this way, it will be much easier to develop a specific budget.
Create A Budget Spreadsheet
Now that you have conceptualized how much you’re earning, how much you’re spending, and where you can afford to cut back, it’s time to get down to facts and figures.
First and foremost, your monthly budget should never account for every dime you earn.
For example, if you make $4,000 a month, you should not budget to spend that entire sum.
On your budget spreadsheet, create line items for all of your necessities and fill in those amounts, then allow yourself a little wiggle room for recreation as well.
Hold Yourself Accountable and Expect The Unexpected
Once you have created your spreadsheet, don’t simply leave it to collect dust until next month.
Revisit your budget continuously and fill it out with your expenditures—even if you overspend.
This will force you to face your errors, and make you less likely to repeat them in the future.
The reality is that most people have created budgets, but the majority can’t stick to them.
Fortunately, since you left extra income available in your budget, you’ll have money available should an unusual expense arise.
If your car breaks down, you lose your phone, or you need to buy your mother a birthday present, you’ll be relieved to remember that you allowed yourself that extra margin in your budget.
Make Adjustments As Your Income and Needs Change
After you get in the groove of budgeting, you’ll find that it starts to come naturally.
You won’t miss the frivolous spending after a while, and you’ll especially enjoy the peace of mind that comes along with having a little financial nest egg accumulating in your account.
Just because your initial budget helped you reach those baseline financial goals you laid out doesn’t mean you should never alter it, though.
In fact, a good budget is inherently fluid—it has to evolve right along with your lifestyle to remain effective.
For example, perhaps you made $4,000 a month when you created your first budget, but you got a raise 6 months later and began making $4,500 a month—your budget could obviously transform in kind.
Likewise, you may have wanted to simply raise your credit score when the idea of budgeting first piqued your interest, but now you may be considering making a large purchase or building an investment portfolio; that means that your budget should be altered to reflect those goals.
Building Healthy Habits for Lifetime Financial Growth
Budgeting your money isn’t just about achieving small, incremental benchmarks of success, it’s about developing hygienic financial practices that will set you on a path of long-term economic maturation.
It’s okay to start small.
In fact, you should start small and make steady, stable progress as you work toward a comprehensive budget that sets you up for stability.
Creating a budget that will work for your lifestyle and your goals isn’t rocket science, but it does take some dedicated attention and financial know-how.
If you could use some help budgeting your money and reaching your goals, reach out to us, and we’ll be happy to assist.