Most people find it hard to make a budget, even though they know how important it is to have better control of their finances and to have a secure financial future. Preparing a budget is however not as tough as it may seem. You can make a good budget that you can stick to with the help of these top 10 budgeting tips:
1. Keep it Simple and Personal
2. Anticipate Expenses and Use Accurate Figures
3. Keep a Target and Maintain a Buffer
4. Categorize Your Expenses
5. Track Cash Expenditure
6. Maintain More Than One Bank Account
7. Clear Off Debts as Soon as Possible
8. Billing Cycles and Expenditure Patterns
9. Constantly Review Your Budget Against Actual Expenditures
10. Maintain the Attitude
When you make a budget, you should stick to your personal spending habits and expenses. Do not generalize it in any way. You can make your budget using software like MS Excel or any other Spreadsheet software, or you can simply use a pen and paper. Try to use the simplest methods and save your brain cells for preparing the budget instead of wasting them on how to use the software.
Try and project your expenses for the entire month when you make your budget. This way you can make allowance for all expenses and make real-time adjustments. When writing the figures down, try to be as accurate as possible so that you have a clear picture of your finances. Once that is done, you can prioritize your expenses and decide what expense to allocate for and what not to.
Be it a vacation, buying a house, an early retirement or taking up a course or hobby, try to be disciplined to realize your dream. Contribute a certain amount towards these goals without fail. But before that, find out exactly how much you will need to achieve your goals.
Sometimes, you will find it difficult to achieve the targeted figure for your variable expenses, calling for an extra amount. So even after estimating the bills and expenses, it is important that you have a surplus amount or a buffer for emergencies. But you should also occasionally gift yourself a small amount that you can spend on anything you want. It will make you feel more comfortable and happy about budgeting.
Have different categories for your expenses. Put your fixed expenses like rent and monthly mortgage payment under one category. Your variable expenditure like your phone or mobile bill payments, credit card payments, expenditure on shopping, gifts or simply dining out could be classified under another category.
Any additional expenses occurring at a particular period like tax payments, automobile servicing or insurance should be put under a different category. Make the required number of categories and review them regularly, but don’t make so many that you end up confused.
Cash outflow could be a leak that is very difficult to plug, making it more important to track it. When you use cash, there is actual outflow of currency that makes you aware of how much is being spent and you are more likely to have control over it. So avoid using your credit card everywhere and keep a track of every little cash expense to better understand your spending habits.
Another important tip is to use at least two bank accounts to better structure your finances. One should be an account in which your income is deposited and your fixed and variable expenses are paid from. The other account should solely be for monthly savings for emergencies and for other planned expenses that you want to make. For long-term saving, try putting a small amount in a recurring deposit or transfer accumulated savings to a fixed deposit that keeps the amount untouched for a specific lock-in period.
Do you realize that for almost half the tenure of your mortgage or student loan, you only pay the interest? The interest paid for loans is very high and the longer you have the loan, the higher the interest you have to pay every month.
Have a target for clearing your debts as quickly as possible. Always put aside sufficient money for more than the minimum due on your credit card or payment on your loan. If you are facing serious credit problems, take the help of a financial counselor to reduce your debt burden. But before approaching a counselor, make sure you are going to the right person, because you want to be free from debt and not be buried in more of it!
Sometimes, the billing cycle of your credit card, the loan payment and other utility bills may fall at the same time, making it difficult to arrange and manage your finances. In such a situation, you can approach your credit company or the utility service provider to request for a change in the billing dates so that you have sufficient time between paying two bills. Plan your payments according to the due dates and arrange to make payments in a chronological order. That way you would not miss the payment and can also avoid penalties.
Keep a tab on your cash accounts and credit card usage. Take time once every week to review your budget to accommodate for any unforeseen expenditure. But accommodation does not mean you alter the budget every week to satisfy your extravagant spending habits. This should be done only to adjust for real emergencies. By revisiting your budget every week, you will also get to check if you are falling in line with your budget or have gone off track.
The most important of the top 10 budgeting tips is maintaining the right attitude. It is important that you remain positive about this exercise. Be firm and discipline your spending habits to stay on track. For the first month, you may not be all that successful in following your budget fully. But do not lose heart and try again the next month. Don’t give up too soon.
Remember that budgeting is not all about tracking your costs or recording them. It is about prioritizing you expenditure by understanding the difference between what you ‘need’ and what you ‘want’. Never forget that your budget could be your ticket to realizing your financial goals.