If you have started earning income, you should learn how to budget. Budgeting protects you from extravagance, which could lead you to empty your bank savings sooner than intended. It is also essential to understand that budgeting requires high levels of discipline. If you fail to observe discipline, no amount of advice or help will stop you from missing your hard-earned income.
The following tips may help you in your attempt to budget:
List Your Monthly Income
To be on the safe side, list your monthly income at about five percent higher than what you are earning. If it’s your dream to have a holiday abroad next year, start saving now by listing an extra 10 percent in addition to half of your monthly income. As a rule of thumb, half of your monthly income is the amount you will spend on essentials: food, shelter, and clothing.
Write Down Your Fixed Expenses
Financial budgeting for beginners requires that you understand different expenses or incomes. After you have such knowledge, you can begin to work on a proper budget. Fixed expenses are those that remain the same no matter how much income you earn. These include rent, utility bills, groceries, and tuition fees. Complete your list by adding miscellaneous expenses such as household expenditures like new clothes. Allocate your income for each expense category and try to stick to it. It may be tricky if you have not budgeted before but keep at it—it will get easier with time.
Keep a List of Variable Expenses
Variable expenses are those that increase with your income. They include entertainment, transportation, and subscriptions. If you have a habit of spending more on these expenses when you earn more, it is advisable to limit the amounts in your budget.
Remember To Add Items You Want in Future
If you want to buy a new TV for your home or a new car, make sure to include these amounts in your budget. You can budget for discretionary expenses as well. These are items you don’t usually think about, but they will be less likely to get forgotten if you make them a part of your budget.
Set Deadlines for Budgeting
Budgeting does not come naturally to everyone. If you cannot commit yourself regularly, set a deadline—usually one month ahead—for the whole process. It will give you enough time to prepare, and you will not feel overwhelmed when it comes to actualizing your goals.
Write Down Your Net Income
Whenever you are paid, subtract your fixed expenses from your monthly income and write down the difference. This is the amount remaining for discretionary spending and savings. You can even categorize this amount into short-term, medium-term, and long-term goals.
Cut Down on Expenses
Remember that the better you are at managing your expenses, the more you can accumulate for savings in budgeting. To reduce expenses, think about your options before you purchase anything. Learn how to shop for cheaper items and practice self-control when making purchases. Don’t spend more than you earn—this is a cardinal rule that no amount of budgeting can substitute.
Create Multiple Budget Plans
A variety of budgets will help you manage your finances better. Different goals require different budgets. You might need to prepare budgets based on your income, the amount you want to save, the balance in your bank account at the end of the month, and even a fixed budget for emergencies. With these plans in place, you will know how much money you have and what you can spend.
Get a Budget for Student Loans
Starting a budget at university can help make your student loan repayments easier, as it will give you an idea of how much you can afford to pay each month. Your budget will also help you work out when you can afford to begin repaying your loan, and it will show you how much interest you’re paying on your loans.
Plan a Budget for Credit Card Debt
As with a student loan, a credit card budget is essential for reducing your debt. Your credit card debt will only increase if you don’t know its current balance and fail to make timely payments. Prepare a monthly budget for your credit card payments to ensure you can make the minimum payments on time, which will help you avoid being charged late fees.
A budget is a practical tool that helps you manage your finances better. If you want to enjoy the benefits of budgeting over time, discipline is a must—without it, it will be hard to stick to the plan.