What is a budget?
A budget basically helps you to spend less. Whether you want to save a bit of money, or cut down on how much you’re spending, budgeting helps you to plan for both the short and long term.
Understanding the basics of budgeting is important if you want to fully take control of your finances. Think of it as financial planning rather than cutting back on what you’re spending. By budgeting, you can estimate how much you will spend each week or month on certain things, and how much you can afford to put aside each month or spend on other things.
Budgeting is so important because it makes sure that you have enough money for the things you need. When you have the responsibility of paying for things like rent, food, utilities, transport, and clothing, budgeting helps you to plan where your money is going. Keeping to a budget keeps you out of debt, and sets you up with healthy money habits for the future.
How to create a budget
Many people think that budgeting is all about depriving yourself of the things you enjoy, but really, it’s just about being smart with your money. Create a budget by first outlining all of your fixed costs each month. This may include your cell phone, your car costs, grocery shopping, insurance, healthcare, and any other costs that don’t change each month.
Once you’ve worked that out, deduct the amount from your monthly income and see how much you’re left with. As an example, if you’re left with $400 a month after your fixed costs, set yourself an allowance of $200 for miscellaneous expenses, $100 for fun, and $100 for savings. Also, think about how much you’re spending a day on small expenses like coffee and lunch, as these quickly rack up over the month.
To track spending, keep a notepad in your bag and commit to writing down everything you’re buying over the next month. This will help you to get a clear idea of where your money’s going, so you can then create your budget and see if you can cut anything out to save extra money.