With the current hike in the cost of goods and services, we can easily miss out on saving. This is why it has become very necessary to create a good budget for ourselves.
Let’s, first, understand what budgeting is. Budgeting is basically creating a plan on how to spend or allocate money for specific needs.
In creating a budget, here are a few things to look at;
Begin by asking yourself why you need to budget.
Why do you think it has become necessary to create a spending plan for your money? If you can identify that need or reason, you are most likely to follow whatever budget you come up with, even on days things get tough. Your reasons could be because; you buy on impulse or hang out with the girls or guys too often than you ought to, buy a new outfit for every event which you end up not wearing ever again, etc. Once you know the why, you can come up with a good plan.
Know what you are saving for.
The main benefits budgeting brings are savings and proper financial management. If you are able to manage your money well, it helps you save more. As much as that is great, if you do not have any use for your savings, you may end up using it or spending it on things that are not really important or relevant. It is therefore necessary to know what you are saving for. And while at it, be sure to separate your short-term goals from your long-term goals.
Short-term goals could be trying to buy a new designer bag or change some kitchen furniture etc.
Long-term goals could include buying a house or a plot of land or buying your dream car.
It is also important to make sure that, these goals are realistic and achievable before you budget for them.
Know your income and expenditure by tracking them in order to create a solid budget. If you don’t have an idea how many go and come out of your account now and then, how do create a good spending plan? It is therefore important to note down every single income and expenditure over a 30-day period as a way of tracking your finances. With that, you are sure not to be over budget or under budget.
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Get down by separating your fixed expenses from your variable expenses. There are those expenses you incur every month that you have close to zero control over. These are your fixed expenses and they include utility bills, house rent, insurance, etc. The cost of your rent could reduce if you probably move to a cheaper or more affordable apartment. If that works for you, that could save you some money. You could also try managing water and electricity to save up on utility bills.
Your variable expenses may include groceries and toiletries, eating out, fashion and beauty products, etc. Knowing these expenses would also help you find ways of cutting down on these expenses.
Try the 50/30/20 rule created by US senator Elizabeth Warren (bankruptcy specialist – at Harvard).
Elizabeth Warren created this as a way to show US citizens how to budget money on a low income and also to save money. What this rule means is that; you will decide to spend 50% of your earnings on your actual needs such as utility bills, transport, rent, etc. The 30% goes into your variable needs such as hanging out with friends, making your hair, hanging out with friends, eating out, etc. The remaining 20% is for your savings and (or) clearing off debts that may be due. An easy way to try this is by automatically splitting your income or earnings in accordance with the rule.
