Budgeting is hard, even for people who've been doing it all their lives. It takes time, dedication, and serious attention to detail. Unfortunately, it's difficult to find anything fun about it, and it can even be boring. However, budgeting does get easier the more you practice, and understanding the principles of budgeting makes it easier to stick to your own budget. Anyone can learn budget management skills.
Continue reading this article to learn why you need a budget and how to stick to it. In order to gain budget managing skills, we need to first explain why budget is useful and how to create it.
Why Even Have a Budget?
Unless you were raised in a home where the family lived on a budget and let the children know about financial matters, you may not even understand the importance of learning budget management skills. There are a lot of reasons you might have heard about why you should make a budget, such as that it's part of being a responsible adult or that you should make a budget when you want to meet a specific goal.
The main reason you should learn budget management skillsis that living within a budget you have created yourself gives you control over your own life, allowing you to make real choices and have different opportunities in life. That feeling of being in control translates into power and self-confidence, allowing you to deal with other life problems more easily. Your life choices truly become your own.
When it comes right down to it, you don't have debt - it has you. Being in debt means being in bondage to your financial circumstances. You can't hold it against the people you owe money to; you got into debt by making certain choices. But there is a way out.
How To Get Started?
Knowledge is power, and nowhere is that truer than when it comes to your financial situation. You may have put off looking at your finances thoroughly because it stresses you out, but you will find that you actually start feeling better once you confront your situation completely and honestly.So let’s take a look at the process of creating a budget and acquiring budget management skills.
Gather Your Financial Information
The first step in creating a budget is to gather all your financial information in one place so you can get a clear financial picture. A lot of the information may be online if you have automatic payments and paperless bills. Use a ledger so you can keep track of all of your assets and liabilities.
Include All ofYour Assets And Sources of Income
Your salary from regular employment, including any bonuses you can expect at certain times
Income from a part-time job or another regular source, such as temporary work or sales
Child support or alimony you receive
Your bank account balances and cash on hand, including checking, savings, and other liquid assets
Add All of Your Expenses And Liabilities
Monthly rent/House payment
Utilities (water, electricity, gas, trash pickup, etc.)
Internet/Cable/Subscription Services (Netflix, Hulu, Amazon Prime, etc.)
Credit card bills
Student loan payment(s)
If there is a fixed or variable amount of money you receive or give every month, then include it in your planning!
Making Tough Decisions
Budgeting is all about making tough decisions.
Budget management skills include knowing how to prioritize your spending.Prioritization is a key part of creating and maintaining your budget, since only youknow what you really needvs want. Some things within your budget are non-negotiables, such as your house payment, utilities, and car payment.
Other things, such as online movie streaming subscriptions (i.e. Netflix or Amazon Prime Video) and Cable TV, are not necessary for survival and are negotiable in whether or not they should be included in your budget.
Cancel Unnecessary Subscriptions
Cut out things from your budget that you really do not need or use. For instance, do you have a gym membership that you bought at the beginning of the year but haven't worked out at the gym since the first week you got the membership? Then you might want to cancel the gym membership. Don't give up on your fitness goals, but try to find a cheaper program that you will actually stay engaged inor try exercising at home or in your neighborhood for free.
Cable TV and online movie and show streaming subscriptions, such as Hulu and Netflix, are not necessarily important to survival and daily life. For instance, did you choose your current Cable TV subscription because of only one or two channels? Maybe there is a cheaper way to watch your shows, such as an online movie and show streaming subscription where your favorite movies and shows are available.
Negotiate Your Bills
If you really use most of the channels in your Cable TV subscription, then it may not necessarily be in your best interest to cancel your subscription. However, this does not mean that you need to pay how much you are currently paying. Consider contacting your service providers and negotiating your bills.
It is up to you to determine if you can remove anything from your budget, but removing things from your budget does not mean just getting rid of everything you enjoy but don't "need". It is important to enjoy life, and if you are not enjoying life, then it will not be sustainable to follow your budget long-term. Remember, creating a budget is about taking control of your life, not stifling it.
Choosing the Right Budget for You
As you can probably imagine, there are many purposes and ways to createa budget. Before you begin making your first budget, you should have a basic understanding of what kinds of budgets there are to choose from. No matter which type of budget you choose, the budget management skills you will need will be the same. This can help you in the future, when you might need to change your budget for different situations.Below we have compiled a list of our favorite three common types of budgets.
The Planning Budget
Just as it sounds, a planning budget is a type of budget that helps you plan for a certain situation. For instance, if you are saving up for a big purchase, such as a new house, car, vacation, or dream wedding, then you will need to plan ways to cut back in certain areas of your budget in order to save up enough for your goal. The first step to creating a planning budget is to be clear about your goal. You need to know what you are working towards in the planning budget.
Once you know what you are working towards, it is time to see where you can cut back. Some things are not essential to survival, so they can be cut out completely, or even just cut back on, in order to save more money each month. Then, all you have to do is make your goal a priority. Start putting the money you saved up by reducing your expenses towards saving up for your goal, and you will be surprised how fast you can make your dreams a reality.
The Problem Solving Budget
With the problem solving budget, you focus on an area of your finances where you spend too much - and then you use a budget to solve that problem! For a lot of people, that area is eating out. They work hard during the day and then they eat out a lot so they won't have to cook themselves and wash the dishes/clean up after.
If you do use a problem solving budget, don't just restrict yourself from the behavior you're trying to change. Give yourself choices and options. So instead of just telling yourself not to eat out, get a friend to show you some simple recipes for your new Instant Pot and start planning all your favorite meals. You will enjoy your food, eat more nutritiously, and save money all at the same time.
The Comprehensive Budget
This is the most complicated budget because it covers everything. Instead of cutting down in one area of your life, you will apply limits to every aspect of your financial life. The important - though not necessarily quick and easy - thing is to create your ideal budget on paper. Once you know what you want and are going to work towards, then you can start focusing on where you will cut back to make it happen.
With great work will come great rewards, though. This is the budget that will overhaul everything and change the way you think about spending. You will create your ideal budget on day one of the comprehensive budget, but that doesn't mean it's set in stone. You can adapt it as you learn other ways to save money.
Using the 50/20/30 Budget Rule
So first, what is this crazy rule? Surprisingly, the 50/20/30 Budget Rule was created by Senator Elizabeth Warren and her daughter. Basically, she says that all your spending should be divided intothese three sections:
50% Is for Must-Haves or Necessary Expenses
This includes rent, groceries, utilities, internet, and any loans you already owe. Most of those amounts are fixed so you can easily plan for them. A few, like internet and loans, may be negotiable.
20% Goes toward Savings
Instead of looking at savings as just something you do to get something specific, saving money should always be part of your budget.
30% Is Your Wants
Anything that you enjoy but could live without falls into this category. That might include cable TV, movies, and going out to eat occasionally.
The reason the 50/20/30 plan works so well for so many is because it's easy and it's balanced. You don't have to give up all the things you love or be completely strict with yourself. Instead of looking at it as restricting you, simply look at it as helping you prioritize.
For more information on the 50/20/30 Budget Rule, read Senator Elizabeth Warren's bookAll Your Worth: The Ultimate Lifetime Money Plan, which she co-authored with her daughter,Amelia Warren Tyagi. They will explain how to make use of the 50/20/20 Budget Rule, in order to take control of your money and begin living the life you have always wanted. They will show you the simple secret: balance. Do not give up what you love, just do it in moderation; just spend 30% of your income on your Wants. You will see money in a whole new way.
Stickingto a Budget
Okay, you have a budget, and you feel confident, but then you keep running into situations where you think you need to spend money you weren't planning on spending. Maybe you forget to bring your lunch or see something really cool online. Shouldn't you buy it when it's on sale? Staying within your budget will take a lot of practice and discipline, but it's easier if you follow these tips:
Create Shopping Lists
Always make a grocery list before you go shopping and stick to it. Planning meals will also help you keep your household organized and save you time. You will know what you have and what you can make for dinner, so you won't have so many impulse pizza nights.
Be Efficient And Waste-Conscious
Don't make more food than you really need, and eat leftovers for lunch. Turn lights off when you leave a room and turn the tap off when you aren't actually using water. You will be surprised how much money you can save on utilities by just paying attention.
Get Someone to Help
You are not alone. Especially at the beginning of creating your budget or if you are having trouble sticking to your budget, get your spouse or a good friend or family member to help you stay on track.
Pay Your Bills on Time
Set up automatic payments or use a calendar to make sure you pay all your bills by the due date. Otherwise, you could incur late fees, fines, or even get evicted or have your vehicle repossessed. Not only will this practice keep you from paying the extra money, but your credit will also start looking great as you have all those on-time payments.
Save, Save, Save
Most people without a budget are so busy trying to make ends meet that they don't have any money put aside in savings. Once you are keeping better track of your money, you will be able to find some leftover money that you can start saving.
Leave Your Credit Cards at Home
Or better yet cut them up. It's far too easy to go over budget when you can charge whatever you want. You don't really see the money, so you just feel surprised when you get the bill at the end of the month. Keep a small amount of cash with you for true emergencies.
Be Realistic When Planning Your Budget
You may start out with plans to wipe out your debt and buy a house by the end of the year, but it's not fair to yourself to make it too hard. Almost no one would be able to stick to a budget that is too strict.
Open a Savings Account
Set up your deposit account so a certain amount is always automatically deposited into your special savings account. You won't be tempted to keep the money and spend it every now and then.
Plan Ahead for Special Events
Are you going to a wedding this year? Is a friend having a baby? How many birthday presents and Christmas presents do you give? You don't have to turn into a Scrooge just because you're living on a budget.
No Impulse Items
Even if you see something you really want, wait for a while before purchasing it. Getting into the habit of waiting will keep you from buying a lot of extra things you don't really need, and once you wait, you may discover it's not really that important to buy the item.
Whether you are looking to make a simple budget or a comprehensive budget, follow our budgeting tips for a successful budgeting experience. You may not naturally have budget management skills, but you will improve your budget management skills with each step you take towards creating your own budget.
It can seem overwhelming the first time you try putting your budget together, but once you have a system in place, you will have a much easier time when you need to just update your budget based on changing circumstances. Budget management skills will help you take control of your life, so start improving your budget management skills today by creating yourfirst budget!
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As a financial expert with a demonstrable depth of knowledge in budget management, let me shed light on the concepts mentioned in the article and provide additional insights.
1. Importance of Budgeting:
- The article rightly emphasizes that budgeting is essential for gaining control over one's life. My expertise aligns with this viewpoint, emphasizing the power and self-confidence derived from effective budget management.
2. Gathering Financial Information:
- The step-by-step guide on gathering financial information is crucial. Utilizing a ledger and consolidating assets and liabilities, including various income sources and expenses, is foundational for creating a comprehensive budget.
3. Prioritization in Budgeting:
- The article correctly highlights the importance of prioritization in budget management skills. Identifying non-negotiables such as housing, utilities, and car payments, and making tough decisions to cut unnecessary expenses, is fundamental to successful budgeting.
4. Types of Budgets:
- The article introduces three common types of budgets: Planning Budget, Problem Solving Budget, and Comprehensive Budget. My expertise supports this categorization, and I would add that choosing the right budget type depends on individual financial goals and circumstances.
5. 50/20/30 Budget Rule:
- Explaining the 50/20/30 Budget Rule, the article provides a balanced approach to allocating income. This rule, endorsed by Senator Elizabeth Warren, emphasizes dividing spending into necessary expenses (50%), savings (20%), and discretionary spending (30%). It's a simple yet effective guideline for many individuals.
6. Tips for Sticking to a Budget:
- The practical tips for sticking to a budget, such as creating shopping lists, being efficient and waste-conscious, and paying bills on time, align with well-established budget management strategies. These tips are essential for cultivating discipline and avoiding unnecessary expenses.
7. Realism in Budget Planning:
- The article wisely advises being realistic when planning a budget, emphasizing the importance of setting achievable financial goals. This resonates with my expertise, as setting unrealistic goals can lead to frustration and hinder long-term budget adherence.
8. Planning for Special Events:
- The advice to plan ahead for special events and allocate funds accordingly is a crucial aspect of budgeting often overlooked. This aligns with my understanding of the need to anticipate and account for irregular or one-time expenses in a budget.
9. Delaying Impulse Purchases:
- The recommendation to wait before making impulse purchases is a practical strategy to avoid unnecessary spending. Developing the habit of thoughtful consideration aligns with my expertise in fostering disciplined financial behavior.
- The conclusion encapsulates the importance of budgeting and encourages readers to start improving their budget management skills. As an expert, I endorse the article's approach and emphasize that consistent practice is key to mastering budgeting skills.
In summary, the concepts presented in the article align with established principles of budget management. The information provided serves as a valuable guide for individuals seeking to enhance their budgeting skills and take control of their financial lives.