Budgeting is a word that fills many people with dread, but if you look at it in its simplest terms, all it refers to is a plan for managing your money. Budgeting refers to spending your money on paper before you have physically received it. Although many people use budgeting as a way to stop them from spending money on what they want, that couldn’t be further from the truth. It is a way to make your more financially strong going into the future. All it really is, is being intentional with where your money will go.
Set Realistic Goals
Before you begin to truly manage your finances, you need to start by determining what is most important to you and decide exactly what you want, and need, to do with your money. Writing down a list of what is important to you as well as your personal goals can help you to budget effectively. This may range from establishing that it’s important to start a new business, build a new family home or even live without any money worries. Then your goals may be to pay off all your outstanding credit card balances, save enough to apply for a business loan, or build up some savings to take time off work with your children.
Identify your income and expenses
After identifying some personal goals, when budgeting it is helpful to look into where your income comes from and what it is spent on. Make a complete list of every source of income and the amounts. This includes wages after tax, any commission, any freelance income, or even a secondary income from the likes of rental returns from property investment. RW Invest based in Liverpool offers a diverse range of buy to let opportunities that can provide investors with a steady stream of monthly income.
Separate what you want to what you need
After tracking your spending, this will help to highlight the difference between what you want and what you need. Hopefully, after differentiating between the two, you will start to cut down on impulsive spending. This type of spending refers to purchasing items that you don’t need, or spending more an on an item than you planned, usually buying something you didn’t plan to.
Buying on a whim can lead to a huge dent in your budget as these costs are not factored into the equation. If you are in a good mood you tend to buy out of pleasure to keep you feeling a certain way. If you are in a bad mood, then spending may make you feel better. Spending on holiday is another time people feel obliged to part with their money.
The key to good money management is separating the needs from the wants and if you have trouble trying to work out the two, then ask yourself what would it affect if you bought it. If purchasing the item has a detrimental effect on your available balance or future budget, then it is perhaps not the best decision to make.
Even when you have devised a workable budget, feel like you are on top of your finances and have planned everything you need to pay for in the month, as there are always unpredictable expenses that crop up suddenly. Perhaps your car is due for its MOT and ends up needing costly repairs, your children need new shoes for school, or your boiler breaks down in your home and needs replacing. Setting money aside in order to pay for these expenses means that you can afford them without going into debt when they arise.