Budgeting…not the most fun topics to talk about but it’s definitely one that needs to be talked about. A huge part of “adulting” is making sure that your bills are paid and you aren’t starving to death…and the best way to do that is knowing how to effectively budget!
It doesn’t matter how much you earn, you need to account for every cent you spend because you have worked hard for it.
Budgeting is actually really easy. I’m sure a lot of people do it. The trouble is following your budget! So here are a few tips that can help you make a budget and follow it…without feeling like you’re making yourself suffer.
Step 1: Note your income
Calculate your net income, i.e. the amount you have left after tax deductions.
Step 2: Track your spending
Make a list of all the things you spend money on, even those small airtime recharges. This help you establish what you are spending the most money on and where it might be easiest to cut back.
Categorize your expenses into two, fixed expenses and variable expenses. Fixed expenses are those that don’t change every month, like rent, loan payments and utilities. These are the expenses that you cannot cut back on. Variable expenses change every month, like transportation, groceries and entertainment. These are very easy to cut back on without feeling the pinch.
Step 3: Choose a budgeting method
This is simply the plan you will use to execute your plan. There are several budgeting methods, including;
The zero sum budget: This method requires you to allocate every cent you make towards your expenses and savings. That means that after allocating money for your fixed expenses, you can allocate the remaining sum to your savings and/or your variable expenses.
The 50/30/20 budget: This method basically allocates 50% of your income for your essentials, like rent, utilities, and groceries. Then, 20% of your budget goes towards your savings, and lastly, 30% of your budget is for your own optional spending.
Step 4: Make a plan
Write down how you want to spend your income for the coming month. It is very important that you reduce the amount you spend on your variable expenses instead of cutting them out of your budget completely. For example, instead of saying you will stop eating out completely, you can reduce the amount of times you eat out. Attempting to cut out your variable expenses completely will make you feel like you’re depriving yourself and makes you hate the thought of following your budget.
Step 5: Automate your payments
Automate your payments as much as you can so that the money you’ve allocated for a specific purpose gets there with minimal effort on your part.
Step 6: Adjust your budget
Your income, expenses and priorities tend to change over time so it is important to revisit your budget and adjust it as needed.