It’s Friday morning (or what ever day you get paid), you wake up excited because you know today is PAYDAY. You’ve been working hard all week and you are ready to have some money in your pocket ! Fast forward to three days later, your rent is due and you check your account and the amount there is significantly less than you thought it would be. Where has your money gone ? It’s probably sitting in the accounts of fast food restaurants, clothing stores, gas stations, etc.
It is easy to spend money especially on the things we want, but having a good budget allows you to plan your spending, this way you are spending efficiently and will always have money for the things you need. It will also allow you to spend within your means keeping you out of debt, or allow you to pay off your debt. Here is how to begin :
- Begin with a realistic goal
Where do you want you finances to be in 6 months, 1 year, 5 years? Decide what is important to you and move on from there.
- Identify where money comes in and where it goes
Continue spending normally for a few weeks and track your spending. There are many apps that allow you to do that, jot down EVERYTHING. This way you will be able to see where your money is going. Alternatively, if you use your debit card mostly, you could also track your spending with your monthly statement.
- Needs and Wants
Separate expenses that you need and the expenses that you want. With every expense ask yourself, do I need this? Can I live without this? Will this help get me closer to my financial goal?
- Design your budget
The most important part of your budget is to make sure you are not spending more than you make.
To do this create categories of areas in which you spend every month, for examples housing, transportation, food, bill payments etc. Then allocate money to each category but only allocate based on the total about of income you have coming in. A good rule of thumb is to allocate 50 percent of your income to essentials, this would include things like rent, food, transportation , in other words needs. 30 percent should be allocated to discretionary items like wants and 20 percent should be allocated to saving.
Creating and following a budget can be difficult especially if you’ve been spending your whole life without a plan , but after a while, it will become easier and more natural and soon you’ll be well on your way to financial stability you want and deserve.