Many people think that budgeting is really complicated. It’s not. All you have to do is create a spending plan and then try to follow it as best you can. The reason why you create a spending plan is to prevent yourself from spending more money than you earn. For a budget to work, you just review your progress at the end of each month to see how you are doing. If you spent more than your spending plan called for, then you need to either adjust your spending, increase your income or adjust your budget.
If you would like to put together a simple budget (or spending plan, as some call it) Whichever method or tools you use to develop a budget, these three steps are always the same. Follow these budgeting steps to learn how much money you have available to spend, and make decisions about where you should spend it.
It seems like you also feel budgeting is boring and somewhat afraid of doing it but there is a way to make it easy, Don’t believe me?
Here is the 3 step guide for budgeting.
Step 1 - Determine your Income and Spendings
This first step means going through your bank statements. Determine your monthly income. This includes what you earn from your job, plus any other sources of income. For example, if you earn regular money freelancing for a company or receive family support, it should all be included in your budget.
Now, figure out your spendings, you need to pull up your last two or three months of bank records including credit and debit card records, and go through your spending.
How much do you spend on a monthly basis? Calculate everything - Housing, groceries, and utilities that are non-negotiable. For instance- Decent internet, a phone plan, transportation expenses, insurance, and loan payments can also count as necessities.
Now, Tally your expenses with an old calendar and write down what you paid for necessities on specific days. This exercise can also make you aware of spending patterns, like how often you stock up on groceries and about how much you spend each trip to the store.
Tip: Use budget planning apps like Mint, Pocket Guard, You need a budget, Wally, Good Budget
Step 2 - Figure out your Savings
This step is extremely important. To fully understand your situation, Compare the amount that you are spending in a month to your income for that month (to find out how much you are spending each month, just add up all of the monthly expenses in the budget outline you just created). Now you need to do subtraction, subtract the amount you need to spend on necessities.
(Your Net Income) – (Your Net Spendings) = Savings (what is leftover)
Tip: Budgeting is the first step towards creating wealth, Inorder to create Wealth you need to invest your savings.
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Step 3 - Fix your Financial Situation
So here is how you can fix your situation and get out of your debt trap. You will need to work on one of these three options.
Decrease your expenses.
When you look over your budget, you should be able to find areas that you can probably cut back. If you just cut back a small amount in a few areas, you will probably be surprised by how much money you can free up.
Increase your income.
Could you work more overtime, take on a second job, take in a student or rent out the spare room?
Best Solution - Do both.
Decrease your expenses and increase your income. If you can do both, you can potentially make some serious progress in reversing your situation.
Remember: Do not stop spending when the leftover money is gone. Try keeping a simple running tally of every fun, purchase you make and when you’re close to the total, you’ll know it’s time to slow down.
The Shortcut
For an automated solution, You can get in touch with a financial advisor or a wealth-tech firm who can help you out with all your financial solutions and help you start your journey towards creating wealth.
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