Budgeting your money is one of the most beneficial habits that you can adopt to guide your spending. This article will help you to devise a strategy that could potentially move you from a spender to an investor in a very short time, depending on your income.
Subjecting your money to a budget process is an important step on the road to financial freedom and success. This process enables you to plan your spending, savings and investments because the last two actions heavily rely on organised cash flow. To budget your money, a number of simple steps described below will suffice. The first step would be to adopt the habit of creating a spending plan that one follows whenever one gets money. This plan should roughly mirror the income intervals that you have. In most cases, this is monthly. This step is important because it eliminates the tendency to spend on impulse. The second step would be to dedicate funds to terminal payments, such as utility bills, insurance premiums, debts, rent and so on. It enables you to determine how much money that you will leave for secondary needs, like entertainment and savings. The third step would be to create a spending plan for all your secondary needs. Secondary needs should fit your lifestyle so that you do not run into debt because of living beyond your means.
The fourth step involves combining the necessity spending with the secondary needs, to determine whether you can create a surplus or deficit for the period under consideration.
If your spending is likely to overshoot your earning, this is a warning that you should either increase your income or reduce your spending. If on the other hand, you are likely to get a surplus, it is a sign that you should either increase your savings or invest your money.
In general, people should strive to dedicate 10-20 percent of their income to unexpected regular expenses. Savings should take about 30 percent of the salary, but what matters in this area is consistency. The rest can then go into ordinary primary and secondary spending.
Lastly, paying for the necessities and the secondary needs should take place. This ensures that you deal with everything before you spend the available funds on any unexpected demands. That safeguards you from debt as the middle of the month approaches.
If people thinks that their spending is likely to spiral out of control, they can keep a list of the items that they know they need. It could be in their wallet or purse. What matters for them is to have a spending guide wherever they go.