It isn’t easy to find any personal finance advice that doesn’t include the importance of personal budgeting in your life. It may seem like if you create a budget, it suddenly controls your life and keeps you from enjoying things.
But in reality, all a personal budget planner does is plan out how your money is going to be used. Its purpose is to make financial freedom possible. Who doesn’t want to have less financial concerns, become debt-free, and have a nest egg for retirement?
How to Make Personal Budgeting Work for You
When you create a budget, there are a few things to keep in mind. For instance, it’s better to overestimate your expenses than underestimating them. When it comes to your income, you should do the opposite – underestimate it so that it’s less likely to experience a budget shortfall. Don’t take on creating a personal budget planner if your family will be using it too. Get them involved in the process and talk about how financial decisions will be made.
Consider Your Budgeting Purpose Before Create A Budget
Hitting your weekly budget planner numbers every week should feel great. Psychologically, it’s easier to be successful if you have a budgeting purpose in mind. It is the ultimate goal of why you’ve put together the budget in the first place. Some examples of goals include building a $1,500 emergency savings fund, saving for a 10 percent down payment on a new home, and putting away $200 towards retirement each month.
Budgeting Strategies to Consider
A budget will help cut down your daily spending and help put money towards savings goals and paying off debt. Use a type of budget that aligns with the goal you want to accomplish. There are many budgeting strategies out there that you can choose. The 50 30 20 rule and cash-only budgeting are two popular methods that we will explain below.
Also called “Envelope Budgeting”, this system uses actual cash for your spending. You need to allocate your money into different categories that can be used for daily spending until you run out. You can decide whether to use a weekly budget planner or monthly, depending on what’s more comfortable. This method is effective because it uses the psychology of using physical money, which is more challenging to spend than swiping a card.
50 30 20 Rule
This budget takes your monthly income and divides it into three categories: Necessities, wants, and savings or paying off debt. The 50 percent towards necessities are expenses that can’t be avoided like housing, food, utilities, insurance, and minimum loan payments. The 30 percent towards fun things like eating out, travel, and monthly subscriptions. Finally, 20 percent towards saving for the future and/or paying down existing debt. How you allocate this part of the budget will vary by your situation.
Budgeting Tips to Consider
You’ve got your clear budgeting goal and are using the right type of budget to meet it. What else should you know about reaching your financial goals through budgeting? There are budgeting tips that will help you create a realistic budget that you can stick with. Consider these tips below:
- Pay off your debt. Having more money available in your budget can be done faster if you don’t have multiple credit cards that need to be paid off. Make paying off your debt a top priority.
- Trim your budget when it’s necessary. If your budget is tight, it’s time to look at ways to save money. Reduce eating out, shopping for clothes, monthly subscription services, and other cuts. You can adjust these things later.
- Build in a buffer. Unexpected things can happen, so make sure that you have set aside some money in your budget. That way, if something does happen, you’ve got funds to cover it.
- Use an online budget tool. Technology can be an efficient way to plan and track your budget. Especially if you don’t find using spreadsheets or paper and pen appealing, there are plenty of budgeting apps out there to help.
- Don’t focus on being a perfectionist. Getting used to a budget takes some time. You don’t have to get it right the first or second time around. Don’t be hard on yourself, and keep working on establishing your personal budgeting.