Financial stability does not only happen if you earn a large sum of money. To become financially stable, you need to work out a monthly budget. A budget can help you determine how much money you spend each month. It can also show you how and where you can save.
A surplus of money can be used in an emergency before you receive your next paycheck. It can also simply be extra money added to your new salary, which is a great way to start being financially stable. To achieve this goal, you need to work with a budget.
What Is A Budget?
A budget is a financial plan that tracks your income and expenses.
This tool controls your finances and stops you from spending more money than you are earning.
The budget is calculated by subtracting your expenses from your income. Using a budget helps you control your money.
Different Types Of Budgets
There are different types of budgets. Choosing one that fits your financial needs will make it easier to stick to.
Cash Envelope Budgeting
This means putting cash into individual envelopes to assign them to different expenses and needs; once you have spent all the money within the envelope, you cannot use other envelopes to fill the used envelopes’ wants or needs.
Zero-Based Budgeting
This zero-based budgeting technique means using your income to cover the total budget by finding reasons to use all your money for specific items or expenses.
Percentage-Based Budgeting
Splitting your income into percentages can help you determine which areas require a bigger portion.
How To Stick To A Budget
Sticking to a budget, in the beginning, can be tricky, especially if you have never had to use one before.
Use these tips below to help you stick to your budget.
- You need to track your expenses regularly.
- Set weekly budget goals and stick to them by checking in once the week is over.
- Use cash to purchase items – avoid debit/credit cards.
- Check your budget at the end of each month to ensure that you have made any changes in how you spend.
- As a reward, you can get something small at the end of each month ONLY if you stick to your budget.
Steps To Making A Budget
We have already established the different types of budgets; let’s get into how to make a budget.
These are the essential components all budgets use:
Assess Your Monthly Income
This is the first step to take so that you know how much money you will have at the start of each month.
If you have any extra income besides your employment salary, you can add this to your budget so that you document all your income.
List All Your Expenses
Listing all of your expenses can be tricky, as some are made through automatic debits.
Also, some bills can differ each month, such as utility bills, while others might be a once-a-while thing that pops up close to an expiry date.
Your fixed expenses will be:
These are the expenses that stay the same every month. They include:
- Insurance policies and funeral covers
- Rent and utilities (if you are on a fixed rate)
- School fees
- Subscriptions, for example, a streaming service such as Netflix.
Your variable expenses will be:
- Food
- Transport costs
- Entertainment
- Clothing
- Emergency expenses
- Debt repayments
You Can Use The 50/30/20 Percentage Rule In Your Budget
This percentage rule is divided into 50% of your income going to your needs, 30% to your wants, and 20% to your debts or put into savings.
This budgeting method is popular because it is flexible and can be adjusted according to your budgeting needs.
Budgeting Tips Made Easier
Here are some tips that can make using a budget more manageable.
You can use a personal finance software program or a paper budget planner to keep track of your income and expenses.
You can also work out your budget by getting help from your spouse, partner, or family member.
Conclusion
Using a budget to run your finances can help you get to where you want to be financially quicker than if you were to spend your money without a care in the world.
It can also help you save for bigger items that you really want or build an emergency fund that could come in handy when needed.
