Ok, let’s be honest here. Keeping track of your expenses will take a bit of work. For those who have not done it before, it might take a bit of practice to get things going. Like any skill you want to acquire, being able to budget properly will take a bit of time and effort. The easy part comes in once you get a routine going.
So let’s get started.
1. Have a goal and make it long-term
Ask yourself, why do you want to get into the habit of budgeting in the first place? The answer does not need to be something you read online or what anyone thinks it should be. They do not know in full detail, what your current spending habits are. You might not know them either. Whatever your purpose may be however, it should have lasting positive effects on your lifestyle.
An example could be: “I want to budget my money to limit my expenses on non-essentials and redirect these funds to create a retirement fund.”
Guess what? You can add to your goals and even tinker with them as time goes by. Just make sure that you stick them. Eventually, you can turn these good intentions into your reality.
2. Save first, then spend
The billionaire investor Warren Buffet once said, “Don’t save what is left after spending; spend what is left after saving.”
So now that you have your goal, it’s time to do the heavy lifting. Divide your monthly income into three parts: monthly necessities, target savings and luxuries. Your monthly necessities should only include the basics such as: rent / mortgage, food, utilities expenses, transportation expenses and education. You may want to rethink your necessities list if it includes entertainment, gadgets, shopping, travel and dining out. This could probably be classified under the luxuries list.
Your paycheck should first go to your monthly necessities, then to savings and if there is something leftover — savings again, if possible. Luxuries do give you some enjoyment it’s true. What it won’t give you is the opportunity to grow your wealth. In fact, it does the complete opposite by taking it. Now it is good to celebrate and engage in consumerism from time to time but only if your monthly necessities and savings are respected.
3. Keep yourself in check
There is an abundance of budgeting apps available in the market to help you stay on top of your monthly expenses. They each have their own strengths and weaknesses according to the goals you have set out to accomplish. This may be a rudimentary thing to say but it is important that you use them. Your goals will not be achieved by simply downloading the app. Investopedia, the world-wide leader of financial content on the web is a good place to view some suggestions.
Among these apps are:
• Mint – for money management
• You Need a Budget (YNAB) – debt control
• Wally – expense tracker
• Acorns – saving made easier
4. Use Cash, Avoid Credit
The only card that you should be swiping is a debit card, unless you can be absolutely sure that you have existing funds to pay off your credit card bills when they are due. Do not under any circumstances, spend money that you do not have even if you are going to earn it at the end of the month. Going against this habit is a surefire way to get you into debt. You could likely end up paying around 3.5% in interest rates or higher should you fail to pay them off completely at the end of the month. Yes, the reward points may be great but you should ideally earn them without having to pay for any finance charges.
Use credit cards at your own risk.
5. Reward yourself
Remember, the purpose of practicing good budgeting habits is so that you can track your expenses. Doing so will maximize your income by focusing on your monthly necessities and leaving you some savings to grow your wealth with. The reward for sticking to your good habits comes after you have performed these steps, not before. It would be great of course to splurge on some luxuries. Any surplus however could also be invested in stocks, bonds, property or any investment vehicle you may fancy.
The choice is yours. Hopefully any reward you choose to give yourself and your family would be in line with your long-term goals.