Budget is the best tool to manage your finances effectively. Creating a budget is most important step that will help you achieve your long term and short-term financial goals.
Though many people considered “Budget” as a negative term and view it as a way to restrict your expenses and enjoyment of life but in reality, budget is the best way to create a solid financial foundation for future. It is the most valuable tool for effective financial planning that helps you live your dream life.
As per definition, “A budget is a financial plan for a defined period often one year. It may also include planned sales, volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows”.
Here are some amazing benefits of creating a budget for your financial success.
Benefits of budgeting
- Budgeting helps in proper allocation of money and give you a better visibility and plan to manage your expenses as per your financial condition.
- Budgeting your money helps in achieving your short-term and long-term financial goals. From going on a vacation to buying a house, budgeting helps in every aspect of life and gives you a financial security.
- It gives a better control over your money and organize your expenses.
- It helps in controlling unnecessary expenses.
- With budgeting, you would be able to see a “Big picture” view of your finances. Budgeting helps in happy retirement. If you save a fixed amount of money as a “Retirment fund”, it will lead to a state of financial stability in life and you prepare well in advance for your retirement days.
- It helps in saving money for future and for emergency conditions.
- Budgeting also helps in identifying any financial problem earlier like difficulty in maintaining cash flow and allow you to act in timely manner to avoid worse financial problem in future.
How to make a budget?
You can create a personal budget (either on monthly or annual basis) as per your individual preference. Budget is most important tool that helps you in planning for expenses, reduce the extra expenses, saving for future and plan for emergency fund.
There are various methods to create a personal budget. But as a basic approach, you can follow these steps. Such as:
- Calculate your total income– first you need to write down or listed the all-income sources of you. Make sure to include extra income too, if you have any additional income sources (such as having a blog that generate some revenue or any part time job or hobby that add some extra bucks in your pocket). If you have variable income, then consider lowest-earning month in the past year as your baseline income for setting the budget.
- Track your expenses– though it may sound little boring but tracking your expenses is equally important. You can use modern tools like spread sheet or can use old fashioned pen and paper for keeping a record of your expenses. Do not forget to calculate your fixed and variable expenses to get a better idea of total expenses.
- Subtract the expenses from income. This step will give you an idea about how much money you will have as saved amount. And if your expenses are higher than your income, then it alarms you to pay attention on both factors that is increasing the income and reduce the expenses.
- Make a plan to maintain a healthy balance between your income and expenses: if your expenses are higher than your income, then you need to make modifications (like lifestyle changes) to make a healthy balance between your income and expenses. This is the key factor to make a budget successful.
Read this post to know more about it: The ultimate guide to budgeting!
Tips to stick on your planned budget
Keep it realistic
I am sure you all would be agree that when we start something new (like any fitness or diet plan), we set a high-end expectation and make somewhat unrealistic goals. The same thing applies to our budget plan as well. Many people set unrealistic financial goals for themselves, when they set their budget line. And this thing led to unsuccessful execution of “Budget” in long term
If you want to execute your budget planning successfully for long term, then set realistic and achievable goals. Try to be consistent and disciplined rather than being over-enthusiastic and impulsive.
Plan ahead for shopping & analyze your spending habits
Plan ahead is the key to minimize your extra expenses. Analyze your spending habits and make a plan to work on it. If you are an impulsive buyer, then this could be a big reason for your unnecessary expenses. Work on your spending habits and improve your weaknesses like impulsive shopping.
Avoid spending more than you earn
This is another important reason why budget fails? Many people tend to spend more than earn. This thing led to excessive expenses and cause failure of budget. Avoid spending more than earn is basic principle to follow your planned budget line.
Take enough time and think precisely before making big purchases
Never make big purchases suddenly or impulsively. Take enough time, look out for deals and discounts. And think precisely before making big purchases.
Save in advance (pay yourself first)
This is another easy way to stick on budget that you have planned. Save in advance (or pay yourself first) is a great strategy to reduce your monthly money saving anxiety. Take out your fixed saving amount in the beginning of month and considered it as you are paying this for your future. This system will help you in stay on track and you would be able to save a decent amount regularly without taking much stress.
Plan your meals
Eating out and drive through pick up are common part of modern and busy lifestyle. These things not only affect your health negatively but also put a tremendous amount of pressure on your planned budget line. To avoid this temptation, it is best to plan your meal ahead and do a grocery shopping accordingly. This small step will help you eat healthier and keep a check on your extra expenses too.
Create a support system and involve your family members in budget planning
This one is another easy and effective way that help you in successful execution of planned budget line. Involve family members in budget planning and create a support system for effective execution of planned budget.
Take professional help, when needed to handle debt and for credit counselling
Handling fiancés is not as easy as seem. Many people faced various challenges like debt that led to a state of financial stress. Do not hesitate to take professional help to consolidate your debt and repair your credit.
Debtconsolidation.com is one of the best resource to help those who are struggling with debt. This is a great website to Find the resources, tools and relief programs to help you manage your finances and get out of debt once and for all.
Click here to know more about their services.
So, these are some effective tips to make a buget that you’ll actually stick to!
What are your thoughts? Please share with me!