Introduction: How Does Budgeting Work?
One of the most important aspects of personal finance is budgeting. A budget is a plan for how you spend your money. It helps you to stay within your means and not overspend. The first step in creating a budget is to figure out what you have coming in and what you need to spend each month. But the second goal to budgeting is not only to live month to month living by pay package to pay package. The second step is to create a budget that will allow to save and invest for the future. Many people forget about the second step to build net worth – effectively to financial grow to open opportunities in the future.
Creating a budget is easy, it’s a case of tracking of what you have coming in and out. This is where a financial diary can help. The difficult part, especially for me is actually sticking to the budget. I will be good for a couple of weeks and then at some point I get all spirtual and ask myself deep questions such why am I doing this? I could die tomorrow and someone else will enjoy my hard earned money. Screw this I am spending it all on MEEEEEEEEEEE!.
1. Get Rid of the Unnecessary Expenses
As the year ends, many people are left with a feeling of disappointment. They feel like they didn’t accomplish what they wanted to do. One of the main reasons for this is that people fail to budget for their goals. If you know your goals and the timeline and cost to get there then the feeling of disappointment goes away and life become more fulfilling and satisfying.
For me my main goal is my health so a gym membership is a must. For someone who is already healthy the need to go a gym is not a priority and therefore a gym membership would be a unnecessary expense.
2. Make Sure Your Savings and Investment Goals Aren’t Ruining Your Progress.
Many people think that saving money is a good thing, but it can actually be detrimental to your progress if you are not careful. This is because the more you save, the less you will have in your checking account to spend on things like food and entertainment. This can lead to feelings of deprivation and frustration which will lead to increased spending in the future, trust me I know I’ve experienced on a number occassions well practically every month. The key is to find a balance between saving money and spending money so that both goals are met.
3. What do you do with the budget once it’s created?
You should review and update your budget on a monthly basis to make sure that it’s still accurate. If any of the assumptions in your original budget were off, you’ll want to use this opportunity to reassess and update accordingly.
Resources that will help with effective budgeting.
There are many tools available to help you create a budget. You can find some free or paid options online or at your local library.