How to budget successfully
11 Feb 2021
We often hear of successful people and businesses talking about budgeting and how budgeting helped them maximise their finances. The idea of budgeting tends to connote to stay away from products we like, and barely going by. It gives out an idea living away from comfort, but thankfully, that is a wrong perception. We are often told that every penny counts and that the money we save now will help us in the future. It is important to be patient whilst saving, as it is very easy to give into temptation and stall the saving process, but the sooner you start the greater will be the overall result.
According to Bethebudget.com, “in short, budgeting is important because it helps you control your spending, track your expenses, and save more money.” * Consider budgeting as a get out jail free card, as it will be beneficial to you in your time of need, whether it is an emergency, debt or a way to reach your financial goal. As previously mentioned, a good budget does not necessarily mean completely changing your lifestyle but is only about being smart about your choices.
What is your goal? Why do you want to save money? Is it debt or a target? Be clear with yourself about the why part – it is what will keep you invested. According to research carried out by the University of Maryland highlighted how setting goals for savings will create an emotional bond that will motivate the saver throughout the journey. **
It is about being smart - what does this mean? Self-discipline and holding back. That is all that it is. Budgeting will help you allocate funds for every month to ensure that you do not overspend. Spending money is not an issue but doing so without a budget could lead to an excess of expenses that could have been avoided, or better spent. Therefore, this is not about holding back from treating yourself – but about being aware on where and how much is being spent. One could take note of the daily spending habits and take action, deciding that one can do without a particular product. Expenses may vary from eating out, travel, transportation, groceries and insurances.
Whether you are using a traditional pen and paper method or a spreadsheet, take note of your monthly incomes and expenses. Take a look at bank statements, investment accounts, recent utility bills, credit card bills, recent receipts and any mortgage statements. It is essential to be truthful with yourself – include every expense and income to have a more rewarding budgeting system. Here, one must be committed to update the list every day to ensure a more accurate portrayal of the savings. If you are not sure about a certain expense or how after-tax income works, ask an expert or research the problem.
How to budget
Several investors suggest the 50/30/20 rule as framework, which is using 50% of your income for needs, 30% for wants and 20% for savings and debt repayment. On paper, this seems quite simple, but in truth the only tough part is staying committed and disciplined. Keep in mind the larger goal at the end! Just like some expenses became a habit, budgeting will as well.
Finally, it is important to stick to your budget and plans. The final target should be motivating enough for you, but those extra wants will make it a bit more challenging. Nothing major you cannot beat! Budgeting could be made easier if you are doing it with a buddy – so pair up! If this is not possible, hang out more with some like-minded friends who will understand your plans and goals.
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