The first rule of financing for everyone is budgeting. However, the most pertinent question for first timers is how to start budgeting and save money. Before we delve into that, let us learn what budgeting means. It is an estimate of the income and the expenditure for a given period. It helps you to set limits on spending so that you know where your hard-earned money is going. It teaches you to spend money responsibly.
How to start a budget from scratch:
Factor in all your income: The best way to make all the money accountable is to know how much money you make by putting together the income from all sources. It can be from
- Monthly Salary
- Business returns
- Alimony or child support
To create a monthly budget, you should be aware of both the income and the expenditure. It is easy for those who have a fixed income you can add up the paycheck for that month. It can get tricky for those who have an irregular income. The best approach for a person with variable income is to pay yourself a salary. You should base your budget on that salary, and when you get the extra income, you can save it for an emergency. The base should be on the average money you earn, that way you will not overspend.
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Budgeting tips to track current spending: Knowing what and how much you are spending help in creating a realistic budget as it gives a clear picture of your expenditure. Track using:
- Spreadsheet or a notebook
- Credit card or bank statements
- Using an app
- Use a calendar to capture irregular expenses like vacation, birthdays, taxes, etc.
Identify and set financial goals: Setting goals help to accomplish more with the money in hand. They can be long-term goals like
- Saving for a big purchase like a house, car, etc.
- Investing for retirement or emergency
- Child’s education
- Saving for education
- Paying off debt
Goal setting helps in motivating a person to achieve it. The key is to know how much to save to achieve your goals. One of the shortcuts is to save at least 20% of your income, out of which 15% can go for retirement and the rest for other goals.
Scheduling a meeting with your family: Budgeting is simple for those who are single. For those with a family, how to start a budget at home is a big challenge as money is the leading cause of stress among couples. If everyone in the family is not on-board, your budget is bound to fail. It is thus essential to have a meeting on the finances and understand the spending habits before you make one.
Input your budget: Various tools can help in creating your budget. Define the categories by being detailed and specific. Some examples are groceries, fuel, entertainment, eating out, utility bills, etc. Set spending limits, track and decide to cut back realistically. Accommodate some money for unexpected expenses. If you are spending more than your income, cut down on the spending.
Money management is the best way to save for the future. Budgeting helps you to save money by cutting back on unwanted expenses, spending your hard-earned money realistically and make the money work for you instead of working for money.