A budget is an important part of anyone’s lifestyle who wants to take control of their finances. It enables people to minimize their spending and maximize their savings. A budget can be defined as a plan for the future in which you describe just how much money should be allocated to what expense. The purpose of a budget is to give one a basic idea of the upper limit on their spending each month so they do not exceed it. This also allows people to understand where they spend more than they should and they gain more control of the various aspects of their money. In simpler words, a budget tells you where your money should be going and in what amount.
Most budgets end up failing simply because not many people take these seriously. It is not the most fun task in the world to write up a budget but its benefits far exceed the minor boredom you may experience. A well planned budget will help you gain a kind of financial security and flexibility you didn’t think possible. What most people are not able to do is come up with a budget that is flexible, realistic, and helps you save. Here are some blunders which people commonly commit:
- A budget leak – It is very common for people to not be writing all their expenses and recording them in their budget. It later backfires when you spend money on these expenses but don’t have any idea where it went.
- An unrealistic budget – Some people think they can survive in extreme conditions and save their money. However, it is not a good approach to budgeting if you are going to starve yourself or remove all sources of fun and entertainment from your life.
- Your budget is missing information – some people end up making extremely simple budgets which is too generalized. It is always a good idea to be more specific about your spending so you can allocate your money more appropriately.
- There is too much information in the budget – while it is a good idea to know how you are spending your money but recording information about every single penny that you spend and how you are going to spend it is silly and just useless. Make generalizations where they are necessary.
A budget should reflect your personal life and how you want to live it. It should focus on just you and your financial goals. If you don’t make it seem like a chore that you need to do just for the sake of it, you can come up with an excellent budgeting plan which reflects your personal needs and wants. So, what should you be doing to build a better budget? Here are some tips you can follow.
The rules of budgeting
The rules of budgeting which everyone should follow go as follows:
- Don’t run after perfection but try to achieve it – a budget is used to plan things out and it is possible that you will not be able to fit your expenses perfectly in the defined spectrum. Make adjustments, improve your budget, improve your spending, and try to make the reality and your budget as close to perfect as possible. Do not give up.
- Care more about the bigger transactions – bigger transactions are more important than the smaller transactions. It is important and very profitable to be smart with your daily, general transactions as well but you could be saving thousands of dollars at once if you spend carefully on bigger transactions such as your home loan.
- Be realistic – many people make budgets which reflect a life they don’t have or can’t live. Make budget based on how you actually live rather than wishful thinking.
- Keep things simple – a simple budget will be easier to manage and feel like much less of a burden. Don’t make it too generalized though!
- Think in a yearly way – a yearly budget is almost always more accurate than monthly ones. This is because when making a yearly budget, you always make provision for expenses during festive seasons and then divide the amount by 12. This gives you a higher upper limit which means your budget will be much more accurate and motivating.
- Pay attention to the problem areas – everyone has a problem area when it comes to budgeting and these areas should be targeted. Someone might be spending a lot more on clothes than they should while others might be eating out way more than necessary. By paying close attention to these areas, you will be able to indulge yourself in the things you like but within the limits of your budget.
- Record your spending – It is important to keep track of your spending so you know that you are sticking to the budget and being as close to it as possible. If not, you can always make amendments in your spending pattern and budget.
- Target your debts – it is important to get out of debts and your budget should make provision for that. If you want to save your money, get out of debts first.
- The envelope system works – putting money in separate envelopes for every category will help limit the amount you spend. When the cash in these envelopes is spent, you should be done for the month.
- A habit will take you a long way – it is a good idea to start reviewing your budget on a weekly or monthly basis so you can stick to it. If you are more aware of how things are going, you will get better at following the plan with each passing month.
Spend smartly, save enough, and earn more for an easier life.