Anyone who feels that their finances are out of control should consider budgeting. This is the primary way by which one can be in control of their spending. A budget is a plan that has been written down of how one will spend their money. Most people create a monthly budget, but one can also put together and annual one.
Being in control of one’s budget is extremely important because if they are not careful, they could end up trapped in debts, making endless payments every month, affecting their lifestyles. Loans should be taken from banks or a licensed money lender in Singapore as they offer better interest rates and plans.
There are many advantages to creating a budget. One can make informed financial decisions, make the said decisions prior to the need arising, cover all expenses that may arise in the year and so much more. The budget is also a tool to help one in building wealth. As such, the importance of budgeting cannot be gainsaid.
There are steps that should be followed if one is to create a proper and helpful budget. The first step is to look back to the last three months and identify one’s expenses. Bank and credit card statements can be useful in this regard especially if one does not use a lot of cash. Armed with the necessary information? It is time to begin: –
1. Income. The first step is to identify how much money one makes. If one only has one source of income, then looking at the income for each month will be easy. If one has varying income sources, then all must be considered. This can include a salary, passive income from investments, and any money from side hustles.
2. Expenses. The next step is to put together a list of recurring expenses. Necessities should be first on the list and should include such things as rent or mortgage, utilities, debt repayment, food, transportation and savings. Other expenses such as gym and club memberships, entertainment, clothing, going out to eat and the like should come afterwards since they are considered luxury items.
3. Carry out a comparison. It is now time to look at income vs. expenses. It is important that the expenses be equal to, or less than the amount one is making. Depending on one’s financial goals, once the basics have been paid off, priority should be given to paying of debt, starting an emergency fund, saving a down payment for a home and the like. Of course, one can always trim the budget by taking away money from luxury expenses and putting it where it is needed the most. Alternatively, one can also work on increasing their income to avail more money to put to other more important areas.
4. Expense tracking. With a budget in place, the next important thing is to track one’s expenses to ensure that they do not exceed the allocated amount. By tracking each category and keeping it in check, one is able to keep the entire budget in check. Should there be need for more money to pay for necessities, money can be reallocated from the luxury section. Tracking expenses is an everyday affair.
5. Repeat. Once you have managed an entire month, it is time to do it all over again. It is important that one has a review of how the month has gone and make any necessary adjustments to each category to have a better, more realistic budget the following month. Budgeting gets easier with time, as does sticking to the budget.
Creating a budget may be a breeze for some, but most times sticking to the budget is the trick. Usually, the 3 initial months tend to be the toughest as one makes adjustments and cuts back on their spending. Here are a few tips that can help make budgeting easier: –
1. Software: Budgeting software can make the work easier because one is able to import their transaction into the various categories. Making adjustments and tracking expenses is also easier when using the software. Today, one can download a variety of apps that can help with budgeting and expense tracking.
2. Use cash: One of the easiest ways to curb expenditure of discretionary money or luxury items is to use cash. By setting aside the amount to be spent on luxury items for the month in cash, and using it for that category, one can watch it dwindle away and stop spending once the money is gone. Cash has a way of giving one a reality check on spending that is not there when one is spending on a credit card.
3. Daily budget review: To stay on track, it is important that one carries out a short budget review every day. The idea is to know how much is left to spend so that one does not end up overdrawing.
4. Find means of saving: One of the best ways to stick with a budget is to keep learning about budgeting and how one can save on the various daily expenses. One should consider shopping around in order to get the best available deals on everyday expenses.