Budgeting is the cornerstone of your financial life. Budgeting ensures the expansion of your wealth so that you can cover necessities, face emergencies and fulfil other goals without sacrificing your desires. Budgeting observes spending habits, identifies the financial offenders and allows self-discipline to cut down on it smartly and effectively.
There is no lack of good information online about budgeting. However, budgeting is very subjective to one's financial situation and needs consideration of unique circumstances.
Therefore, this article will discuss some practical tools that everyone can adopt to approach smart budgeting:
For people who are starting, budgeting and tracking can be overwhelming. Tracking requires a lot of mental gymnastics and can be discouraging. Hence do not attempt at tackling budgeting and tracking expenses all at once. Start small.
Start tracking your expenditure for a week or two. Keep a comprehensive list of your spending for one week and observe the patterns. You will notice where you spend the most at an early stage and recognise and differentiate between good expenditure and bad expenditure. Once you have made a budget, keep notes on your actual expenditure versus the expected spending you outlined in your budget. You will be able to set more realistic budgeting goals through this comparison.
You will also be able to adjust your expenditure on a monthly basis for different occasions. You may have emergency costs that need to be adapted for that month's budget.
Do you prefer to use cash or cards? Different methods of payment can make tracking and budgeting more complex. It also matters which methods help you better not only track and budget but to limit expenditure. For many, cash payment helps limit spending because it makes you conscious and more aware of your spending habits when paying in cash. If you prefer to use cash over electronic payments, the envelope system might be the solution for you. It prevents temptations to spend over the amount you have set in your envelope.
But if you have control over yourself with card payments, it is best to ditch cash because cash payments are more difficult to track. With card and online payments, you can record every expenditure automatically, making budgeting a lot more convenient.
Most expenditures are necessary, and some are not. Non-necessary expenditures are not bad per se, and they can be important for retaining some form of social life and mental health. However, it is necessary to look at the problematic spendings that are causing more harm than good to your finances. We are not talking about once-in-a-while takeouts or vacations that you can and should take. We are talking about the offenders that cause you to spend more often than required for something unnecessary. For example, insurance payments may be high, but they might be necessary for you. Unnecessary expenses could be impulse shopping, buying the latest models of new releases every time (e.g. electronic devices), maintaining assets that can be downsized without sacrificing quality (e.g. a car or rental) and many more. These targets are specific to individuals, and they help you face the barriers to financial stability.
Budgeting tech tools are getting more attention from financial enthusiasts as many swear on them for having helped them to save money. On the other side, more innovative and convenient budgeting tools are appearing in the market since many now opt to use them to help them budget. Even banks have started offering their own budgeting tools for their customers. Some of the most well-known budgeting tools are apps like YNAB, Mint and Personal Capital that not only create budgets for users but also connect to their bank accounts and cards to keep track of their expenditure. This is especially helpful for people who make the majority of their payments electronically. However, it does not mean that it cannot be helpful to cash users. If you are using cash most of the time, you can still pre-prepare, note your expenses down, and add them later in the budgeting app.
If you're not into the idea of using apps or prefer keeping all of your applications separate, you can also use spreadsheets, as many people prefer to customise their budget.
You do not need to stop getting takeouts or shopping to make a budget. Trying to restrict all non-mandatory spendings at once may harm your budgeting attempt than fix it. It is better to establish attainable monthly goals to minimise spending. Understand that you will face setbacks but do not let them derail the progress that you have made so far.
Make a budgeting plan to adjust your unexpected payments and still reach the goal you have set. Find out where you need to spend for that specific month and how you prefer to pay for it. Also, account for the goal terms - is it long-term or short term? A basic financial rule is that retirement is always a priority in your budget; however, it is a long-term budget. Perhaps you need to set aside emergency funds before that, which is a short-term budgeting goal. You'll be in a better position to ensure that your spending priorities match your life priorities after you've got your budget under control.
Last update: 16/11/2021
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