How to budget your money
We all know that budgeting isn’t very sexy. It’s just one of those things that have to get done. Although, there are ways to make budgeting a more satisfying experience and that’s where Slash comes in.
We all know that budgeting isn’t very sexy. It’s just one of those things that have to get done. Although, there are ways to make budgeting a more satisfying experience and that’s where Slash comes in. We have some trick that can turn budgeting from just another chore, into a way to make your dreams come true.
First of all, If your plan is to get control over your finances it’s important to know why.
Whether it’s saving up for a night out, or to buy a house, having a goal in mind is vital.
According to the International Journal of Business Management and Administration, it’s vital to create specific and manageable objectives for yourself. This is because it will help you stay focused during turbulent times.
Breaking up a larger goal into smaller pieces will help you feel the sense of accomplishment that will push you forward through the years.
It's not about HOW, it's about WHY
There're many means you can use to start saving money however the main question here is why you've decided to do it. According to the International Journal of Management, Business and Administration, it's essential to be able to create specific, yet challenging objectives. If you know exactly what and why you want it, this can significantly help you to stay focused and on track even during the most turbulent times.
Before you begin, get a piece of paper and ask yourself these questions.
- What’s my biggest priority: Buying a house, going on vacation, travel etc.
- What’s a challenging, yet realistic goal I could achieve to get me where I want to go?
- Will I still want these things in five years, or if my situation changes?
Short VS long-term planning
A difficult part of planning can be uncertainty about what you want long-term. Something you’re ready to buy now might be forgotten in a few weeks. That’s why it’s very important to plan for both the short-term and long-term and to distinguish them in your budget.
Short-term goals would be a new pair of shoes, car repairs, going out to a club. Things that fit into your budget without stretching you too much. Meanwhile, long-term goals are things to work towards like a new car or house, going on a big trip or opening a business. These expenses are large and usually require substantial amounts of planning and preparation.
Mixing both into your budget makes the far off goals less intimidating, while sprinkling achievement into your daily life. As a poet once said “Variety is the spice of life”. It’s a simple phrase but it’s also a great way to make budgeting a satisfying experience.
Be Realistic
It can be difficult to know your limits, oftentimes you won’t know them until you run face first into a wall. This can be really bad for your motivation. Working hard towards something and watching it get further away from you will leave you in a funk.
Edwin Locke is a famous psychologist who created a system for setting goals called SMART (Specific, Measurable, Attainable, Relevant, and Time-bound). The basic idea is to give yourself specific, difficult and time bound goals.
SMART can help with measuring your limits as it breaks down goals into small time periods. If you set yourself a goal and find you’re constantly unable to achieve it over a set period. Well, at that point you know there's a problem and you can re-evaluate and give yourself a more attainable goal. This means you don’t wait years to realise you’ve hit a wall and can avoid crushing disappointment in the future.
Track your spending
In order to start budgeting effectively, it is important to assess your cash-flow. It’s very simply what is going in and out of your bank account each month. With online banking it’s very easy to check this. You go into your banking app and open the transaction history. Then, you can organize income and expenses or use a budgeting app. Oftentimes you’ll find forgotten subscriptions or missed autopays siphoning money out of your account each month. It’s important to check these things and it's very easy.
Fixed VS variable expenses
There are two types of expenses you should differentiate in your budget, fixed and variable. Fixed expenses are the important costs that occur every month such as rent, utility bills, insurance, loan payments, etc. These are the boring things that can’t really be ignored. Variable costs are more flexible. These are things like eating out, entertainment and shopping. Variable expenses are usually more fun but can be cut back in a pinch.
Saving consciously
Now that you have a good idea of your minimum living expenses it’s a good idea to figure out how much you want to save monthly.
Even if you’re a freelancer without guaranteed hours or varied income the 50/20/30 rule is easy and effective.
The 50/30/20 rule goes like this:
- 50% of your income goes towards fixed costs like rent, bills and emergency expenses.
- 30% goes towards variable expenses like eating out, shopping and trips to the pub.
- 20% goes towards your savings account, or paying off debt.
If you decide to try this method a helpful way to get started is to use a tool like Oracle. Tools like Oracle, automatically divide your income every month into categories and lets you know when you’re going over. This means you won’t have to worry about keeping meticulous notes about every expense or worry constantly about accidentally going over budget
Like many things in life, budgeting can seem strict and stifling. If you actually try it you’ll find that in the long run it can actually give you more options, less time worrying and flexibility in the future..