In our increasingly fast-paced and dynamic world, managing personal finances has become an essential piece to any financial journey. Most people know that budgets can help them better keep track of their finances —From day-to-day expenses to long-term financial goals, budgeting is a powerful tool that can make a significant difference in achieving financial stability. Once you define the reasons for creating your own personal budget plan, it will help you become more financially aware and in turn, more prone to follow your budget in order to achieve your financial goals.
Spend Less Than You Earn
The number one way to set yourself up for financial success is to spend less than you earn. A budget can be crucial in managing debt and avoiding excessive borrowing. It allows you to allocate funds for debt repayment, reducing financial stress. It also helps allocate funds for savings and investments, enabling you to build an emergency fund and achieve long-term financial objectives, such as retirement or education funding. So, what’s the easiest way to do this? Tracking every dollar that comes in and out of your account via a detailed budget.
Gain Peace of Mind
Part of having a positive relationship with your finances is to give yourself some peace of mind. Knowing that you have funds saved for unexpected expenses generally helps you to go through each day with less worry. So, if your car all of the sudden needs a new battery, or you need to upgrade your laptop, you don’t have to stress over it. By allowing yourself the ability to put money into your savings account or even moving your money into different forms of investments, you’re giving yourself that peace of mind.
Give Yourself the Chance to Afford Fun Trips and Fun Purchases
One of the best parts of following a budget is that you can plan for purchases and expenses that are more for pleasure rather than strictly needs. This means that you can allow yourself the opportunity to buy the things you want (but don’t necessarily need) if you account for them ahead of time. It makes those weekend shopping sprees or Friday night concerts much more enjoyable when you know for a fact that you can afford them, while keeping your finances in a healthy spot.
How to Create a Budget
Budgets typically follow one of three common timelines: weekly, bi-weekly, or monthly. There are positives to each, however, all three types are effective and can help you hit your financial goals. The key is to decide what will work best for you to help account for every dollar you spend and earn. For some, budgeting by month or every other week is best because their paychecks follow these timelines.
Successful budgets give you a clear picture of every dollar that you spend and earn. So, when it comes to asking yourself, what should you track? It’s simple: everything. This doesn’t mean you need to always keep a running tally of your accounts or save your receipt from every single purchase, but it does mean that the more you allocate ahead of time, the more successful your overall budget plan will be.
For example, if you know you like to go out to dinner every weekend, you need to dedicate a portion of each check to dining out. Think of it like sorting your money into buckets. The money you spend at restaurants should only come from your dining out bucket, so that you can guarantee you aren’t pulling money from the buckets that you need to pay for bills or other necessities.
Also, you need to track your income closely. Whenever you have money that’s coming into your account, you should note it in your budget. If you don’t monitor the money you earn, it’s easy for your budget to get confusing and become inaccurate. Having an inaccurate budget is just like having no budget at all.
Overall, the most important part about budgeting is simple but not always easy: follow it. Still, no one is perfect and it’s likely that you’ll make a mistake from time to time. All is not lost though! When you break your budget, you can get back on track by reviewing where you went wrong and resizing your spending buckets to allow for the error. Reviewing frequently will help you keep your account in a healthy spot even after a mishap.
If you build a budget that accurately reflects your income and spending, you’ll be able to start making moves towards your financial goals and ensure that your money is going where it needs to. The best part about having a budget is being able to do the fun things you want to do, while simultaneously setting yourself up for financial success down the road. Embrace the power of budgeting and take the first step towards financial freedom and success.