Dear Richful Thinkers,
How many of you make a regular budget? Or know the skills behind creating a budget?
That is okay! The most overused recommendation for getting out of debt is ‘make a budget.’ But if you do not know HOW to do it then that is useless advice.
Budgeting hardcore and ‘giving every dollar a job’ is not for everyone, it certainly is not for me. Still, there are some things you need to consider before you can sit down and create a budget that fits you and your life.
Know your why
What are your goals? For instance, debt payoff, trying to reach a savings goal, retire early, increase your cash-flow. The reason you need to figure out your why is that in order to create a realistic budget, you need to determine your priorities. Just a note, budgets are fluid and can change over time. You might realize that something is not working for you, so you will need to amend it.
Know what budgeting method you will use
The point is, you will need to figure out what budgeting method fits you the best. You need to make sure you are not too restrictive for your lifestyle. So be patient, it does take some time to figure out what fits you best.
Know your total income
This goes without saying but in order to have a balanced budget you need to know how much money is coming in. As well as make sure that it is higher than your expenses. So tally up all of your income(s), and how often you get paid. If they are irregular, then calculate with either the base pay or the lowest you have had in the past year. That is the template I have used in the past.
Know your total expenses
Take 3 bank statements and go through it to see where you spend your money. What you need to cut out or limit the spending on. Essentially, figure out what you value.
These will form the basis of your budget, it also allows you to see any ‘ghost-spending.’ Nothing paranormal about it but it can be scary to see where your money is disappearing.
Know your expense categories
How many and what kind of categories are you going to use? An underrated question to be honest. Some like to have many categories which prevent them from overspending in one area, for instance, they may have the category for food separated into eating out and groceries.
Others might just have the one category and it encompasses both those.
Finally, some others *cough-me* just have one category for spending and then do not worry about these specific things.
You have to find what fits you best.
Remember, creating a budget can be a daunting task but it does not have to be.