Budgeting - Living within Your Means and Spending Wisely - Growth Freaks

Budgeting – Living within Your Means and Spending Wisely

a sheet of paper, a calculator and a pen

Are you the kind of person who pays attention to their expenses and tries to spend wisely, or do you find yourself wondering where all your money went at the end of each month? This is just one of the differences between people who enjoy budgeting and people who haven’t discovered its countless benefits just yet. In today’s guide, we’re going to delve into the subject of budgeting and touch upon the following things:

  • What does budgeting mean?
  • Why do you need a budget?
  • What are the main benefits of budgeting?
  • Useful budgeting strategies to get you started.
  • A beginner’s budget worksheet.

Budgeting: A Comprehensive Guide

#What Does Budgeting Mean?

The first thing we should do before starting a conversation about budgeting is define this term. Budgeting is a process that consists of several activities that a person performs in order to prepare their budget. Budgeting includes estimating future costs, establishing the amount of money you’ll be setting aside, and other such tasks. Basically, the aim of budgeting is to help you make the most of the money you spend and to ensure you won’t find yourself utterly broke at any given point.

#Why Do You Need a Budget?

1. Because You Can Use It as a Financial Roadmap

It’s extremely easy to make impulse purchases when you don’t have a budget plan to follow. Such a plan could help you find a direction for your money. You’ll have an overall idea of how much to save, what to spend money on, what to avoid, and so on. This would make the whole financial map much easier to navigate.

2. Because It Makes You Spend Less and Get More

As impossible as this may sound, budgeting can help you get more than you would if you were to simply spend money on impulse purchases. For instance, maybe you want to buy a new car or go on a dream vacation. Knowing when to save money and how much to set aside is going to help you achieve your goals faster and easier.

3. Because It’s Practical

There’s also the practical side of budgeting that we need to underline, which is related to how this strategy is going to help you on a daily basis. If we consider expenses such as bills, knowing the exact amount you have to pay will eliminate any surprises. If we think long term and look at future goals, these still influence our daily decisions. The thought of that vacation you’re planning a year from now might convince you not to buy that expensive jacket you don’t need.

4. Because You Will Never Be Surprised by an Expense

As we’ve mentioned above, budgeting guarantees no financial surprises. If you get anxiety imagining how much money you’ll have to spend next month, start budgeting and you’ll notice how the certainty of your expenses will make the anxiety go away. While some people might think this limits their freedom, it actually feels more free and empowering to be able to avoid any unpleasant budget surprises.

5. Because You Can Adjust It According to Your Needs

Another thing that negates the idea that budgeting is restrictive is the fact that you can adjust your budget whenever you feel like it. This proves that it’s actually quite flexible. You can change your budget when your income changes, when you add or take out an expense, when you make a new future plan, and so on.

5 Main Benefits of Budgeting

1. You Become Aware of Where Your Money Goes

Maybe you’ve noticed how when you don’t keep track of your expenses, you end up wondering where a certain sum of money went. Without budgeting, it’s easy to allow expenses to slip through the cracks.

With budgeting, nothing can slip through the cracks. Click to Tweet
You know how much money you make, how much you pay for different types of expenses, and how much you save.

2. You Set Aside Money

One of the main goals of organizing your budget is managing to save money for future expenses. Whether we’re talking about planned expenses, such as buying a car or going on vacation, or unplanned ones, like a medical emergency or lending money to a friend, a strict budget is going to help you be prepared.

piggy bank filled with money

3. You Become Aware of Potential Problems

You can’t organize your budget without looking at everything related to your finances, both individually and as a big picture. By doing this, you’ll be able to foresee potential issues that might disturb the balance of your budget. Noticing these issues in time will help you deal with them before they actually become a problem.

4. You Can Realistically Establish If You Can Take Debt

Usually, people either rely on debts and consider them a great option for making new purchases, or they run away from them as fast as possible because they fear they won’t ever get rid of them. The truth is that debt has its ups and downs. Still, as long as you can realistically afford it, there’s no reason why you shouldn’t give it a shot. Having a clear budget will help you establish this.

5. You Control Your Money

If you’re afraid money controls you, you should try budgeting. This strategy of creating a budget helps you take control and be the one who decides how much money you spend, on what, and what you’re going to do with the money you save. You won’t have to stress about not knowing whether you’ll have money to pay the bills next month or you’ll have to adjust to a new type of budget.

4 Budgeting Strategies to Get You Started

1. Proportional Budgeting

The first budgeting strategy we want to discuss today is called proportional budgeting because it entails dividing your budget in three different types of expenses. These expenses are savings, needs, and wants. Like the names suggest, they refer to the money you set aside, the basic expenses you have to pay each month (bills, taxes, food), and the expenses for entertainment purposes, extra costs, and so on.

Basically, what you need to do is split your monthly income into these three categories and establish very clearly how much money you’re going to allocate to each. How is this strategy going to help you? Well, first of all, it will help you realize the difference between something you need and something you want. Second of all, it will make you understand how much money you’re spending on things you don’t actually need.

2. Cash Budgeting

Are you having a hard time budgeting because you can’t work with abstract ideas? You’re not alone. There are many people who feel like calculating and dividing money that only exists in the shape of a credit card is impossible and ineffective. For these people, there’s always the option of cash budgeting. This entails doing your budget in cash. Depending on how much money we’re talking about, this may or may not be 100 percent possible. Still, you can do as much of it as you can like that, if that gives you a certain amount of stability.

You might find it inconvenient to pay your bills with cash, since online banking is just a couple of clicks away. For that purpose, you can keep some money on your credit card and cash the rest to use for things such as groceries or entertainment. This will make it much easier for you to see exactly where your money goes. After all, you’re not dealing with abstractions anymore, but with bills that you can hold in your hands.

3. Subtraction Budgeting

If you’re at least a little bit familiar with budgeting, you probably know what this strategy is about. Many people use it, some not even realizing this means they’re budgeting. What it entails are some additions and subtractions done on a piece of paper or in a digital file.

First, take all of your bills and calculate how much you have to pay for them. Then, take your monthly income and subtract the bills. You should also subtract another sum of money that will constitute your savings, but that depends on how you want to approach budgeting. What remains after you subtract the savings budget is what you can spend that month.

As we’ve already mentioned, the savings budget is not mandatory, but it should be considered, since it can help you with many things. If you have any irregular bills you need to pay or if your car breaks down, you’ll have the money to deal with these issues. The amount of money you save every month is also up to you. Our advice would be to save the same amount of money you keep for monthly expenses.

4. Two Bank Budgeting

This is another interesting strategy for organizing your budget and saving money that we want to share with you. The first thing you have to do is open a second account at a different bank than your first one. Then, ask for your paycheck to be deposited in that second account. Next, ask the bank to transfer part of the money to your first account each month after you get your paycheck. This can be done through an automatic transfer, so it’s not an extra chore.

bank employee shaking hands with a customer

What’s interesting about this strategy is that you’re going to transfer most of your money into the first account, leaving behind only a small sum. That way, it will feel as if you’ve just been paid when the transfer happens, and the money left behind will stay there for saving purposes month after month. This automatically enforces savings and diminishes the possibility of you accessing the money put aside.

#Budget Worksheet for Beginners

A budget worksheet, especially one for beginners, shouldn’t be too complicated. It’s good to start slow and then see how you can develop your budgeting skills. For now, we propose this simple worksheet you can follow.

1. Your Monthly Income

The first section of the worksheet should include your income. Since you can get your income from more than one place, write them down separately, for instance paycheck and child support. Then, add them and see how much money you can rely on for the respective month.

2. Your Monthly Expenses

Next come your expenses for the month, which again should be divided into several categories. Some suggested categories would be:

  • housing expenses (mortgage, utilities, phone bills, rent);
  • food expenses (groceries, eating out);
  • transportation expenses (public transportation, gas, taxis, parking, car maintenance, car insurance);
  • health expenses (health insurance, medicine, doctors’ appointments);
  • personal and family-related expenses (clothing, child care, laundry, entertainment, beauty, donations);
  • finance expenses (bank fees, cashier’s checks fees, money transfer fees);
  • other expenses (student loans, supplies, tuition).

After calculating all these monthly expenses separately, add the sums and see how much you have to pay for your total monthly expenses.

3. Your Savings

Now that you’ve established how much money you get in a month and how much you have to spend, you have to check whether you have enough money to set aside or not. If you have, that’s great news. If you don’t, but you still want to save some money each month, you have to go back to the expenses section and see what you can afford to cut and what you can’t live without.

Summing It All Up

Creating a budget, managing your expenses, saving money every month, and so on can sound overwhelming, especially for young people who are just learning to manage their finances by themselves. In fact, budgeting isn’t and shouldn’t be a chore. Why? We hope we managed to answer this question in today’s guide. Keeping track of your budget can help you achieve financial stability, which is something many people crave.

If you think you still have to practice until you’re ready to organize your actual budget, you can always create a sample budget and see how you’d handle that. Moreover, we recommend taking a look at the Home Budget app available both on Google Play and in the Apple Store. It can help you get started with budgeting in a simple and easy way.

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Author: Amanda Knowles