At every point of our lives, we have in one time or the other, had to prioritize or separate some things that are of utmost importance to us and trash or push aside the ones that are less important or not important at all. This also plays out in our finances, while some people save without any stress, managing money well is not an intuitive skill for most people.
What is Budgeting 101?
Why does it seem like some people are so skilled when it comes to managing their money well? The answer is simple- Budget! A budget is most times, a written financial statement of intended expenditures and how best to allocate the funds. A good budget plan helps you to plan, based on how much money you have, what you are spending the money for, and gives you suggestions on how to fund the budget wisely.
For some people, budgeting is an unnecessary, needless and rigorous process, while others feel there’s no need for a budget, not when their finances seem to be in order and they seem to save enough.
How can you create a Budget?
Budgeting 101 is the core and simplest form of budgeting. The good news is, you can create your budget just by yourself. Here are tips on how
- Determine what you need a budget for: To create a guideline that determines the spending and saving of your money is a great idea, but it isn’t an idea to jump at, without knowing why you want to do it. In Canada, only 47% of Canadians follow a strict budget plan to determine their spending. It’s great to first of all, highlight the reasons why you need a budget.
- Add up your current income: After outlining the reasons why you need a budget, the next step is to add up your net income, that’s the money remaining after tax and other compulsory commitments have been automatically deducted. Add up all your income, including business income, investment income and every other source of income. Add all these up and relate it with your expenses (current spending habits).
- Track your spendings: About 90% of Canadians run into debt, because of their failure to stay true to their budget. Tracking requires you putting a check on how you spend your money. You can use a spreadsheet or notebook to record all your spendings. However, the disadvantage of using a spreadsheet is, if expenses are not entered immediately, you might tend to forget. You can use a tracking application device, which will be linked to your bank account, credit cards and every source of cash flow. You can also use a calendar to track irregular and occasional expenses like Christmas, birthdays, vacations etc.
- Prioritize your financial goals and how much you want to save: Budgets are for achieving long term goals, while some are for the needs of the nearest future. Whichever category you choose to belong to, identify what you are saving for, and how much you intend to save monthly. Decide what kind of budget you want. Whether it’s a restrictive budget or a permissive one.
- Be realistic: it’s good to set financial goals, but making them realisable is key. Do not set utopian goals, or goals that you’d end up not keeping up with. Be truthful to yourself and your commitment.
Know that a budget is not a financial death sentence, don’t forget to save, no matter how small, for fun time and unwinding.