Budgeting is one of the most important financial skills you can adopt. Budgeting helps you control your spending, track your expenses, and save more money. It can also help you to make important financial decisions, prepare for emergencies, stay debt-free, and focused on your long-term financial goals. Living on a budget is a fundamental component of proper financial management. Here are three simple guides you can follow to enjoy a seamless budgeting journey.
List your Income and Expenses
As we have already established, Budgeting involves estimating your income and tracking your spending to enable better use of your money. To aid proper spending, make a list of your income(s) and how much you spend every month. This is the first and most important step. You can also write down these details in a journal or preferably a spreadsheet (google sheets or an excel sheet etc), separating your income from your expenditure. There are also budgeting apps that give you an option to simplify all of the budgeting processes like Mint, Simplifi, Ynab and more.
Use the 50/30/20 Rule
For starters, understanding the details of budgeting and what works might take some time. To simplify this process, the 50/30/20 rule makes it easier to both remember and simplify the budgeting process.
The rule can be broken down into the following:
50 for Needs/Essentials
30 for Wants/Non-Essentials
20 for Savings and Investments
In order to manage your money better, 50% of your income, whether it comes as a single source or from various sources, should be used to meet the most important needs. Depending on the individual, this could include food, accommodation, and transportation. 30% should be used to take care of your wants or non-essentials. This may include fun outings, holidays, and a new gadget. The 20% can be spent on Savings and Investments.
Follow what works best for you
Reading broadly on budgeting or any financial topics may not get you the results that you require. Therefore, it is best to start right away, observe what works for you and stick with it.
Whichever method you choose, your budgeting should include two basic routines:
- Tracking what you earn and what you spend.
- Working to keep the second number lower than the first.
Do have an interesting budgeting journey and don’t forget to share your progress with us.
