Congratulations on taking the first step towards financial freedom! Starting a budget is a great way to get a better handle on your finances. Here are some tips to help you get started:
- Figure out your goal: Do you want to save for a specific purchase, pay off debt, or build an emergency fund?
- Calculate your income: Gather your pay stubs, bank statements, and other documents to estimate your total monthly income.
- Calculate your expenses: Create a list of your fixed monthly expenses (e.g., rent, utilities, etc.) and your variable expenses (e.g., groceries, gas, entertainment, etc.).
- Balance your budget: Compare your income with your expenses and adjust accordingly.
- Track your progress: Use a spreadsheet or budgeting planner to keep track of your progress.
A few essential points to consider when creating a personalized budget should be emphasized to ensure you're optimizing the benefits. Before moving forward, consider the following points to understand how to maximize your budget to reach any goal.
Determine Your Budgeting Needs
To achieve the best results, you will first need to understand why you want to start budgeting and what your goals are. You're far more likely to generate a better financial situation when you stick to The Planned Budget.
Begin with finding your end goal and what you intend to gain out of this. The purpose is to remind yourself of what you're working toward so when you get tempted to give up (or buy an extra something), your end goal will keep you motivated but ensure that they are specific goals as they produce far better results.
Reasons people decide to begin budgeting can vary widely and can include;
- To overcome a financial situation that causes household financial stress
- To break the cycle of living pay check-to-pay check
- To overcome a habit of overspending
- To pay off outstanding debts
- To save for future purchases such as a new home or a holiday.
Something to consider is that overspending results from having a lack of control over your behaviours. Most negative habits or behaviours surround our emotional state i.e. when I get depressed I tend to Emotionally eat my feelings or buy something pretty. This is a negative habit that I am honestly trying to stop but as I know full well this can be difficult. However, I have made a Habit Tracker to keep me in check and I also reflect on my budget to see what this expense will do to our budget.
Determine Your Spending Habits
The first thing I do is monitor precisely where your money is being spent. This will give you a understanding of how bad your financial situation is, making your budget more practical and tailored to you and your families needs.
Bank Statements (Bank and Credit Card Statements)
Experts advise that one of the best ways to review your spending history is by checking at least 2-3 months of bank statements to understand your spending habits.
Track Your Next Two Months of Spending
Rather than looking back at spending habits, before you start your budget, prepare yourself by checking all your daily spending and keeping notes i.e. receipts or filling in a expense tracker. Just make sure you remember to add EVERY expense even the overdraft charges or that cup of coffee, as these are often forgotten but do add up over the course of your budget.
Check Sinking Funds
Budgets often fail because people forget to factor in sinking funds. This includes holidays, birthdays, Black Friday, Cyber Monday, MOT's, annual payments, and more. Once you have everything noted, it would be best to add these expenses into your budget to prevent an overspending.
Budget Using the Cash Stuffing System
One of the best ways to make this budget manageable is to make it hands-on so that you can physically see where the money is going. It is also a great way to stop overspending as you will have to physically hand over the cash you become more conscience of its value.
Create Categories
Your categories can be anything you need to track throughout the week or year. Personally I have 5 binders (separate blog posts for details) each are used for difference categories i.e. Variable Funds Binder includes;
- Weekly grocery wallets
- Change wallet
- Receipts
- Vouchers/Coupons
- Receipts
The purpose of designating a category for each expense is to define a specific amount to each, making it easier for me to monitor and make individual adjustments. This will also prevent you from overspending because, within each category, you will be conscious of exactly how much you can spend.
Take Notes
Once you have all the categories created, it's best to note them in a cash stuffing tracker. Complete a Budget Tracker where you can distribute the cash into these categories and adjust before you physically put them into your binders.
Makes Changes & Adjustments
At the end of each month or pay, the notes you entered will indicate if you have cash leftover. Unless, you use the zero out method.
If you've managed to save money in one or more categories, consider reassigning a lower value to that category for the next pay. Use the left over income and put it toward debt or savings accounts.
For example, if you save £50 each month on take out, you could add £50 to a category such as credit card, student loan, or savings. But, It may be best to add it to a debt account so your debt is paid down, then quicker you can start to save money.
Final Thoughts
Now that you know how to create and maintain a budget, you are likely starting to understand your own financial situation better and how best to budget your income. It's important to remember that budgets can have unexpected expenses (as I know too well i.e. car breakdown) this is when it's hard and you can begin to slip but if you have a better understanding of your budget you will be able to see where you can make adjustments. Afterall, it is The Planned Budget but we cannot plan everything 100% of the time so don't be disheartened, just pick yourself up and start fresh the following payday.
Lastly, remember why you are doing this. YOUR END GOAL. Whether it is simply being debt free or finally getting that deposit together for your dream home, keep your goal in the forefront of your mind.
I hope these tips help you get started and reach your financial goals. Good luck!