What comes to mind when you hear the word “budget” or “budgeting?” Is it an onerous task involving the use of balance sheets and spreadsheets that makes your eyes glaze over? Is it the exercise of listing down and prioritizing monthly expenditures that you dread will deny you the enjoyment of your hard-earned paycheck?
When you understand it, you will discover that a budget is simply a tool to help you track down your usage of money every month. With a clear view of how you’re spending your money, you will be able to see where to make adjustments so that you can achieve your financial goals. Here are some of the essential ingredients that need to be in your budget for it to be of benefit to you.
1. Track Your Expenses
Perhaps the most beneficial element of a budget is its ability to help you know exactly what you spend money on. Ideally, your budgeting process will start with you jotting down your main expenses- food, housing, utilities, transport, school fees, etc. Having these items down along with what you expect them to cost you will ensure they’re covered by your income. You don’t want to have to borrow for essentials.
2. Use Cash More
What if you had to go through the onerous and costly process of getting cash from an ATM or at a bank branch every time you needed to spend? Imposing this rule on yourself instead of being able to swipe as you please would make you think twice about spending beyond what you budgeted.
Allowing yourself the liberty of swiping away whenever you see an attractive item online will make you start to lose track of your expenses. You may think using your card for a two-dollar online purchase is harmless but these seemingly harmless impulse buys can stack up and derail your budget.
3. Make A Schedule
Scheduling your expenses will help you remember the timeline by which each of your major monthly expenses should be taken care of. It will ensure you don’t divert your disposable income elsewhere until that item has been checked off your expenses list. Your savings, rent, bills, and loan repayments should be priority items when preparing this schedule.
4. Prepare For Unexpected Expenses
Yes, the whole idea behind a budget is being able to track and keep a tight leash on your spending. But from time to time, things will come up that will require you to spend beyond what you had budgeted. Instead of diverting money from your savings or essentials, create a buffer that will cater to emergency expenses every month.
If an item continuously makes you dip into your emergency kitty every month, you should consider upgrading it into a permanent expense in your budget.
But what if you’re dealing with an unexpected expense that exceeds the buffer you created for emergencies? There are a number of options to explore. You can withdraw cash from your savings account, which puts you at risk of delaying the achievement of your goals. A secured loan or a payday loan alternative can help you deal with the emergency while leaving your savings intact.
5. Cover Overspending
If you do exceed your budget, don’t beat yourself up about it. Make changes to cover your excesses as you look to perfect your financial discipline in the coming months. If you’re just getting started with budgeting, it may take you three or four months to get into the flow of things. So be gracious to yourself.
6. Pay Off Your Debt
If you’re in debt, make it a priority item in your budget so as to be able to get rid of it as early as possible. To ensure all your debt is paid on time, you can issue standing instructions to your bank so that the money is taken out of your paycheck before you can contemplate spending it.
Should you happen to get a considerable infusion of extra cash- an inheritance or the proceeds from the sale of an asset, channel it towards clearing your debt. Reducing the principal amount will reduce the amount of interest you have to repay and lighten your payments.
7. Make Goals
One of the greatest motivators to sticking to your budget is seeing its impact on your financial goals. This is why it’s important for you to set goals. If you’re married, take time to discuss with your spouse what you hope to achieve in the coming five, 10, or 20 years. Would you like to buy your own house? Are you looking to start a venture on the side?
Having a goal in mind will give you the discipline to save in the face of temptation.
8. Self-Control
Without self-control, sticking to your budget will be impossible. Having financial goals tied to your budget will help you resist the temptation of instant gratification. With a target of X amount to be raised as the deposit for your family home, you can put off splurging on that 500-dollar watch or the latest Xbox console.
Having someone hold you accountable for sticking to your budget will also help with self-control. If you’re married, you and your spouse can keep each other in check. If you’re single, get a trusted friend, reveal your financial aspirations to them, and ask them to keep tabs on you.
More Than A Spreadsheet
There is much more to budgeting than simply listing your income and expenditure items. You need to make that list come to life by actively committing to it and ensuring that it leads you to your financial goals. For your budget to work, you need to be prepared to be disciplined and make sacrifices.