Even though it might appear difficult, creating a budget for your finances doesn’t have to be difficult. Saving money for your short- and long-term goals might almost seem natural with the help of these useful budgeting techniques.
These advice is available to everyone, not just those with a lot of extra cash. We’ve got you covered if you’re wondering how to manage money on a low salary with clever strategies like the 50/30/20 budget guideline.
Discover five of our go-to, tried-and-true budgeting techniques by reading on.
1. Explain why you want to budget your money before asking how to do it.
Even though it may seem straightforward, the first step in making a budget is figuring out why you want to start saving money in the first place.
Setting clear, ambitious goals is the secret to success in any undertaking. Setting clear, attainable savings goals can be made much easier by being aware of what drives you to save. Additionally, remembering your savings objectives may keep you motivated and on course even when circumstances are difficult.
Before creating your budget, consider the following three questions:
What matters most to you? Do you, for instance, live to travel? Do you aspire to own a home one day? Or do you want to put money aside for education?
What tough but achievable goal are you trying to save for?
Is this objective compelling enough for you to want to persevere, even though there are times when saving can be a little challenging?
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2. Differentiate between short-term and long-term savings objectives.
The next stage in creating a budget is to divide your savings goals into short- and long-term plans after considering why you want to start saving.
What is a goal for short-term savings? These rather modest goals could consist of the following:
a lovely item of furniture
a weekend getaway
a deposit for a vehicle
a reserve account
Goals for long-term savings may resemble:
a down payment on a home or apartment
settling any outstanding debt
launching a new business
A journey around the globe
The bigger goals may appear less daunting if you have a mix of short- and long-term saving objectives. You might become aware of how possible it is to save money and have control over your finances as you steadily accomplish your short-term goals. Your long-term goals may feel more attainable as a result.
How to make a realistic financial plan
Examine the viability of your short- and long-term savings objectives before creating your budget. Nothing is more demotivating than setting an idealistic but completely unachievable goal and then watching it get more and more out of reach.
To develop SMART goals, as recommended by psychologist Edwin Locke, is a great personal finance tip. Specific, Measurable, Attainable, Relevant, and Time-bound (SMART) are acronyms for these criteria. Your budgeting goals are realistic enough for you to start your budget as long as they fit each and every one of these five categories.
READ ALSO: Clever Ways You Can Save Money From Salary
3. Monitor your spending to establish a reliable budget.
You need to be aware of the precise amounts going in and out of your account each month if you want to start budgeting efficiently.
The simplest method to do this is to keep track of all of your earnings and outgoings for a full 30 days. This entails keeping track of each and every transaction, either manually or via a budgeting tool like You Need a Budget or a spreadsheet.
4. Distinguish between variable and fixed costs
The next step is to divide your expenses into fixed and variable costs once you have a clear picture of where all of your money is coming from and leaving each month.
Included under the category of fixed costs are:
electricity and heating costs
Costs of insurance (i.e. car, personal liability or property)
payments for student loans
Variable expenditures, which can fluctuate every month or even every week, consist of:
Entertainment (i.e. nights out, cinema outings, concerts) (i.e. nights out, cinema trips, concerts)
Tips for personal budgeting that can help you cut your variable expenditures
Your variable costs give you more flexibility to save money than your fixed expenditures do, if any at all. You are not required to quit having fun and going out. It just entails creating routines that will enable you to save a little bit more.
To reduce your variable costs, you might wish to think about the following budgeting advice:
Instead of purchasing lunch at the office, prepare your meals at home.
If your existing phone model is still in good condition, ask yourself if you really need to switch to the newest model.
Pick a day each week when you refrain from making any variable cost purchases.
Adopt the “save now, pay later” philosophy. This entails saving money at the beginning of the month for your fixed expenses and savings targets, and simply spending the remaining amount to cover your monthly variable expenses.
5. Make a monthly spending plan.
You have determined your fixed and variable costs, your savings goals, and the reasons behind your desire to create a budget. Now is the moment to determine how much money you can save each month.
Naturally, this differs greatly from person to person. You might work full-time as an employee with a consistent salary or as a freelancer with fluctuating revenue. Or perhaps you’re working hard to stretch every dollar to make ends meet on a meager salary. Whatever the situation, we’ve put together some wise budgeting advice that applies to all income levels.
The 50/30/20 rule suggests the following for your budget:
50% of your income is spent on “needs,” which are your fixed expenses like rent and bills.
Your “wants,” or your variable expenses like eating out, going to the hairdresser, and shopping for clothes, are allotted 30% of your budget.
20% is allocated to savings or debt repayment.
The 50/30/20 rule was really developed by Harvard bankruptcy expert and US senator Elizabeth Warren to help Americans learn how to save money, budget, and do it on a modest salary.
If you choose to use the 50/30/20 technique, you might want to think about monthly expense automation. This indicates that your money is automatically divided according to the 50/30/20 formula at the beginning of each month. By doing this, you’ll only have the 30% designated for “wants” in your bank account, which you may use as you see fit during the month without worrying about going over budget or falling short of your financial objectives.
The budget based on zero
In comparison to the 50/30/20 strategy, the zero-based budgeting system focuses at giving each penny a defined task. There should be no money in your account at the end of the month after subtracting all of your revenue from your expenses.
This entails adjusting your budget so that you can accurately track your fixed, variable, and savings costs each month, down to the last cent. This method of budgeting requires you to pay close attention to every single monthly transaction as it occurs because it is so detail-oriented.
Make a budgetary backup plan.
It’s a good idea to have a budgetary backup plan in place for when things get a bit tricky because life often has a few surprises. Preparing for times when you might not be able to adhere to your plan as strictly is one of the finest budgeting advices. This prevents you from losing heart and altogether losing touch of your financial objectives.
The following advice will help you draft a contingency plan:
Consider including saving for an emergency fund in your budget. This could entail setting aside 5% of your monthly salary for those unforeseen emergencies.
Make a backup spending plan that you can turn to in an emergency. This spending plan eliminates everything that isn’t necessary for day-to-day living, i.e.