You’re here because you found yourself unable to save a little bit of money to get you through the hard times. Now you ask yourself how you could ever afford to buy your dream house, dream car or dream vacation?
You might feel a little worried now. After all, you’ve just realized that with your poor spending habits and poor financial planning, everything could fall apart.
You’ve just gotten your salary a week before, and now you find yourself wondering… “Where did all the money go?” They all disappeared faster than you could say the word “budget”.
Worst-case scenario, you might be currently in a situation where you’re drowning in debts, and yet here you are, buying the next brand of cellular phone and that imported pair of shoes you saw at the mall the other day.
And let’s face it, you got a serious problem. You have poor money planning skills. You don’t know how to budget. You’re here on this page because you’ve realized that if you don’t start budgeting now, you’ll continue to lose track of your spending, fall into more debts, damage your credit and fall short in all of your savings goals. We both don’t want that to happen.
That’s why on this page, I’m going to discuss the 8 simple steps of budgeting and saving if you’re a total newbie in the field of financial planning.
Know your why
You’ll need motivation. It’s not easy to remember tracking every single money spent. It’s not easy to stop yourself from overspending. So, try to be clear on why you’re doing this. Is it because you want to be prepared for emergencies? Is it because you need money to pay for your children’s college tuition? Whatever it is, have clarity.
Get to know your spending habits
To get a clear picture of your spending habits, track down everything that you spend on for 30 days. To do this, make use of your credit card and bank statements. Keep your receipts to know what you’ve been purchasing. List all the things you’ve spent on in a notebook or in Google Sheets. If you like things to be automated, consider using a budget app like Mint, YouNeedABudget, and Wally.
Get to know yourself
Once you’ve seen your spending habits, you can assess if you have trouble with overspending. You’ll see if you have the habit of impulse buying or if you tend to buy things that do not align with your goals. Doing so will help you identify how much accountability you need to stick with your budget.
Add all your income
List down all the money that is coming in. List down your salary, income from your business, side projects, and investments. This helps you have a clear idea of how much money you need to manage.
Have clarity on your financial goals
Once you’re done doing an assessment with your current spending habits, loans from your legal moneylender, and your current income, identify your financial goal. Are you planning to buy a house, pay off a debt, save for college or go for a week-long vacation? Whatever it is, be specific on the details — the amount of money needed and the date you’re going to fulfill it.
This is an important step because it lets you identify your priorities. You’ll know what to spend and not spend.
Set a realistic budget strategy based on your assessment
Now, identify how much money you need to save to reach the goal. If you’re planning to save $500 for emergencies, then, by all means, stick to that. If you need to pay a total of $3000 worth of debt (interest included) in a year, then you can put aside $250 a month for that.
Make sure that the budget you made is something you can stick to. If not, then you’re just going to quit in frustration midway.
If you want more help in budgeting, use the tools I’ve mentioned above or follow models most suitable for your personality. If you want a more restrictive model that assigns every dollar a job, then, by all means, follow Dave Ramsey’s zero-based budget. But if you want a budgeting model that offers a little bit more flexibility, then the 50 – 30- 20 budget by Sen Elizabeth Warren might be best.
Discuss the budgeting with all those involved
If you’re budgeting for a household, all the spending and the saving involves the effort of everyone. So, it’s important to agree upon how your spending habits as a household is going to change. And it’s important to think of ways to keep each other accountable.
Have a monthly assessment
Track how well you’re managing your finances every month. This way, you can assess areas of improvement.