Outside of personal and family wellbeing, the one thing that everyone cares about is their financial health. This may take on different forms depending on the person and their situation.
For someone, it may mean earning more money in a month than they spent. For another it may mean saving enough money to buy a dream house or affording a big vacation in a year.
Regardless of what the end result intends to be, the objective can be clearer and more easily obtained by following a budget.
A budget is meant to be an informative tool to help understand what your cash flow looks like in any given time period. Following one can help save for a big purchase, or simply improve overall financial health by aiming to reduce overall debt. It should involve actual income and finances so that the knowledge gained is as accurate as possible.
Being realistic while budgeting is important as well. If you set up scenarios that are unlikely to happen or even impossible, then your chances of following through with the plan and meeting expectations are reduced. Follow the simple tips below to help get started with a basic budget.
Determine Income and Expenses
The first step should involve creating a baseline of finances that are essentially the boundary you have to work with. Start with your monthly income. If it is not a fixed number, then consider using the average amount or even a value less than that to be conservative.
Next, tally up all the required expenses you have in a given month. These may include utility payments, phone bills, auto payments and credit card minimums. The difference between your income and the expenses you must pay is what you have left to work with when it comes to budgeting.
Track Miscellaneous Spending
In order to realize where you can make financial improvements and gains, you need to know where your money is going. There are several software packages on the market that can help with this, but a simple log or spreadsheet can just as easily suffice.
It is best if you create categories to place charges into, and these may vary from person to person. Some common examples could be food, fuel, clothing, healthcare and pets.
Once these are established, you can place any expenses that you have into the appropriate category. This is important because if you simply say that you want to “reduce spending,” then it becomes difficult to see exactly how to do that.
You will be more inclined to adhere to a budget if you establish worthwhile goals for it. These can be stated differently depending on the situation and might change over time. An objective may be broad in nature, such as “save a certain amount per month” or “don’t spend more than this amount.”
Using the categories from tracking your spending, you may be able to get even more specific with goals. An example of this may be something like “don’t spend more than this amount on groceries.”
Once you have made it to this point, you’ll have a clear idea of where the money you make is spent, and where some cost-cutting can be made. These smaller monthly goals can eventually lead you to hit a larger target, or possibly changing your spending habits permanently.
Utilize a Savings Account
If your desired goal is to save money, then keeping it available in your main spending account may be confusing or even tempting. If that is the case, one option is to transfer that amount to a separate savings account each month. GBTI offers savings account options as well as several other associated services.
The benefit of doing this is that even though the money is still readily available, it is more out of sight and thus out of mind. It will likely force you to think twice before using that money for any unnecessary spending. It might even provide additional motivation to follow your budget plan so you can watch the account value increase.
Stick With It
A final thing to understand about budgeting is that no two months will be alike. This can be especially true if your paychecks vary and are not based on a fixed income.
Required payments, such as utilities, may have different ranges based on usage during that month. Additionally, sometimes spending outside of your budget becomes a necessity. If your car breaks down unexpectedly, you will probably have to pay to fix it.
If someone in your family gets sick, then that will also be an unplanned expense. No matter the circumstances, it’s essential that you stick to the original plan. Over time, the good months will outweigh the bad and you will be well on the way to achieving your financial goals.