The Ultimate Beginner’s Guide to Budgeting and Saving
You have just made a new year resolution on being more responsible for personal finances, but you don’t know how to go about it. Perhaps I can indulge you with an ultimate guide centered on providing you with the proper foundation for financial education. Making a decision to budget and save, can help improve your financial life. Having a budget will help you make effective financial decisions, and can truly transform your financial life. With budgeting in place, you can easily start saving which would enable you to live out a financially free future.
Whether you are a novice or an expert in finance, this article will help you manage your money wisely. The beginner’s ultimate guide to budgeting and saving provides some easy and practical steps. Now, let’s get started:
1. Keep a record of all your Income and Expenditures
Before you think of budgeting or saving, you need to have an engrossed idea of where you are in your finances. What that means is you need to keep track of what you already do with your money, which is to make a record of all your expenses periodically. This task gives you an opportunity to watch yourself on how you spend and what you spend your money on. It doesn’t just tell you where your money comes from (Income), but where it goes to (Expenses), at the end of a particular period. This brings about an opportunity to become more intentional about your finances. By keeping yourself accountable periodically, you can have an overview of how you spend and in what you spend, which would be useful in making better financial decisions which, in this case, can help you get started with budgeting and saving.
2. Create a Simple Budget
Now that you have a record of your income and expenses, you are ready to start budgeting. A budget is simply a roadmap that tells your money where to go each month. A budget enables you to be in the driver’s seat of how you spend your money, and what you spend your money on. Creating a budget after taking a record of your income and expenses can be very easy. This is because you already have a fair idea of which expense category requires much money, and which requires less. For example, while taking daily records of your expenses, you found out at the end of the month, you spent $300 on food alone. This information can help you budget within the range of $250 to $350 on food for the following month. Having a budget helps you make smarter decisions with your finances on a daily basis. It prevents you from reckless spending and puts you in the habit of saving.
3. Set up an Emergency Fund
As you get acquainted with budgeting, you expose yourself to opportunities in your finance where you can be able to direct your money. After making a budget for feeding, transport, electricity bills, phone bills, etc. you might have some funds left that have not been apportioned. This is an opportunity for you to put those funds in a new category called an Emergency fund. An emergency fund is simply a pool of money that you can draw from to cover unexpected bills, such as job loss, medical expenses, etc. without having to go into your main savings or borrow money. It is simply a form of savings or a savings account, and having one in the appropriate amount will change your life for the better. An easy way to start an emergency fund is to budget it as you do on other expenses. When it is being treated as an expense, it causes you to always deposit money into your emergency fund account, which then builds up with time and can protect you in times of unforeseen contingencies.
4. Minimize Debt and Expenses
One cool thing about budgeting is that it keeps you informed on the items or expenses that take a huge portion of your income. This serves as an opportunity to cut out on some unnecessary expenses in which those funds can help you reduce your debts. There is no point in budgeting if you make a budget on how your money should go at the end of the month, and end up doing whatever you want but keeping records of it. That is accounting, not budgeting. When you budget, you are able to easily identify expenses that should be curtailed. This enables you to have more money available for savings, which would then be used to minimize any debt you may have. Cutting back on eating outside, ordering meals online, or taking too much coffee can provide saving opportunities that help you stay in control of your finances.
Being able to budget, minimize and/or erase debts, and also minimize expenses, can enable you to easily start saving monthly. Decide on how much you want to save, and ensure that you save that exact amount every month. In order to get yourself in the habit of savings, you should start with a small amount of money, which in due time would definitely increase. Also, being able to effectively budget will expose you to other funds that can be saved as opposed to being randomly spent, the last time you never had a budget. One effective way to save is to include it in your budget as an expense. It is important that when income arrives, you pay yourself first. This means saving a small percentage of your monthly income. By ensuring it’s the first thing you do before you pay other outstanding or recurring debts, causes you to become financially responsible and keeps you afloat during difficult times.
This ultimate guide to budgeting and saving is merely the beginning stage towards setting you up for financial freedom. But the steps discussed here can provide you with a solid foundation on that journey.