When it comes to savings, have you started a budget? Do you know what budget means? I lived most of my life without budgeting and only looked at what my salary brought in and making sure I can pay all my expenses. Whatever was left at the end of the month, I put into savings. So, that doesn’t sound too bad given that I didn’t spend more than I could afford, right? I’ve been fortunate that it hasn’t put me into debt but is what I’m doing good? It’s not a budget. How to start a budget.
A budget is a financial plan for a defined period, often one year according to Wikipedia. A financial plan. Do you have one? Here’s how I started to create my budget.
Know Your Absolute Expenses
What are the expenses you absolutely have to spend on? I consider mortgage/rent, car payments, insurance, and transportation as absolute expenses you can’t live without. If there’s an expense with a certain amount you cannot live without, that is something you have to fully budget for.
Limit Other Necessary Expenses
What are the expenses you need to spend on but not necessarily need to spend too much on them? First thing that comes to mind is food expenses. I used to spend whatever on groceries and never tracked it. Each week, put a certain dollar amount limit and don’t go over it. For me, I used to consider food as an absolute expense and paid whatever, not realizing I was paying so much. When you set a budget limit, it helps regulate your spending from over spending.
Limit Your Un-necessary Expenses
We’re all human and we like to buy things to satisfy our cravings or make life more convenient. By all means, don’t stop yourself from your enjoyment, however, set a budget on those items. Do you need to buy coffee everyday? Do you need to eat out multiple times a week? Set a budget to limit your spending.
Another way to limit could be reducing your expenses. For example, do you need to drive a certain car? Can you drive a car that is older and less on insurance? Do you need to live in a certain neighborhood that is more expensive than the other neighborhood? Do you need a 4000 square foot house? There are ways to limit your expenses by downsizing.
Keep Track Of Your Spending
How do you know if your budgeting is working? Keep track of your spending in a spreadsheet or any other method you have. Check your financials frequently. That way you can monitor how much of your budget has been spent and how much you have left. Over time, hopefully you will see that you’re spending less and have more money to do other things with it.
Setting a budget is like having big brother watching over your spending. You will start to be more aware of how much and where you’re spending your money. The hardest part is living within that budget you set and sticking with it. You’ll have money that you can save, invest, pay of other debt, donate, or other. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
To see all my previous articles, go to my Archive page.