How to prepare a budget

How to prepare a budget

How to prepare a budget

Are you ready to set up your budget? Start with the basics. This includes determining income, your bank balance, debts, and tracking expenses. Next, set your priorities and find the right budgeting system for your needs. The 50/30/20 budget rule might work for you. If you get stuck, try these budget tips:

1- Determine the reason for setting the budget

Start by identifying the reason that prompted you to create a budget. Are you overspending, in debt, or looking for expenses to cut back? Or maybe you’re saving for something like a wedding, a new baby, or a car.

“Identifying why you budget will boost your chances of success and help you stick to it,” says DeDe Jones, certified financial planner and managing director of Innovative Financial.

2- Use persuasive language

The term “budget” may sound unconvincing at times. “People resist it because it doesn’t convince them,” says Jones, who recommends switching this phrase to something you feel more comfortable with, such as “the spending plan.” Whatever statement you choose, it shouldn’t scare you, limit you, or make you feel disenfranchised. It should be an opportunity for your financial success.

3- Test different budget planning methods

Just as there are many reasons for creating a budget, there are many ways to achieve it. Some people manually log and track expenses every day, others want to do as little work as possible, choose a related app, and so on.

“The key to budget success is sticking to it and accepting the fact that the first months are really tough,” says Liz Gillette, a certified financial planner with Mainstreet Financial Planning Inc. Many methods may not work for you, but you should keep trying until you find the ones that seem right to you.[2]

4- Setting priorities for expenditures and objectives

Start by understanding the difference between needs and wants, then focus on the essentials first like groceries, housing costs, and transportation. This does not mean that other expenses are not important, but rather the purpose of the budget is to understand whether your money goes towards priorities first, and then determine the amount of luxuries expenses that the budget accommodates without forgetting the item of savings and emergencies.

The 50/30/20 budget is a good guide for covering major spending categories that suggests using 50% of your income for needs, 30% toward desires and 20% for savings and debt.

5- Leave room for surprises

Life always surprises us with things that we didn’t expect, so you have to take the necessary precautions to ease the pain of the blow. Set aside a little cash for miscellaneous expenses each month and make regular contributions to an emergency fund. With this method, you can handle an unexpected car repair or other emergency situations perfectly and effectively.

6- Use technology responsibly

Technology can help you alleviate the tedious aspects of budgeting and prevent setbacks, so why not let it do some of the work for you? Try setting up automatic transfers so you can pay bills regularly, and rely on budgeting apps to easily track your spending.

7- Reconsider your budget every month

Income may change and some expenses may vary from month to month or some of them may appear infrequently such as gifts, holidays and so on. Checking your budget at least once a month gives you the opportunity to deal with fluctuations in time.

 

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