Get Better With Money: A Step-by-Step Guide to Budgeting
Do you ever feel like you don’t know where your money is going? Does it feel overwhelming to do your own budget? How to do it? Where to start?
This is all normal and you are not alone!
However, managing money is not that hard. All you have to do is to learn how to do a budget and stick to it. The good news is that you already have everything you need to start doing it. You just need to familiarize yourself a bit more with your money. You will do exactly that when you go through steps 1 to 4.
Then, in the next three steps, you will learn how to improve your financial situation.
Trust me, in the long term, following these basic principles can help you achieve all your financial goals.
Let’s begin.
1. Cash Inflow
That’s the easiest part. Where is your money coming from? Do you have a fixed salary or maybe each month your earnings are varying?
That’s okay, just list your sources of income.
- Salary
- Dividends
- Medium
And so on. Calculate your total income. This is your cash inflow. If it is not fixed, track it for several months and calculate the average. This will still work.
2. Cash Outflow
What are your expenses?
Your first job is to list all your expenses. First, start with ones that are fixed and you pay them each month. These are rent, mortgage, loan repayments, insurance, etc.
Then, try listing the variable expenses — groceries, gas, dining out, clothes, hobbies, vacations, books, etc.
Just think of your spending habits and be sure to list all kinds of expenses there.
3. Calculate Your Monthly Expenses
The picture is getting clearer.
Next to each of the expenses you’ve listed, try estimating how much that costs per month.
Rent — $1,700.00
Books — $150.00
Groceries — $650.00
And so on. When you assign values to all your expenses, you can calculate the total amount of your expenditures.
4. Calculate the Difference
That is another easy step.
Subtract your monthly expenses from your net income to determine how much money you have left over each month.
This is your starting point for monthly savings.
5. Reduce Your Expenses and Increase Your Income
Now, let’s have another look at your expenses. There are some that cannot be easily reduced. These are your fixed expense like your rent. However, you could easily identify areas where you can reduce your discretionary expenses.
For example, if you identify that you spend too much on dining out, you can start cooking at home from time to time.
Just look closely at your expenses and see where you can improve your spending habits so you could free up some money.
Of Course, you could always look for ways to increase your income. If you are not into side hustles, you could always negotiate a raise at your current job.
6. Have Separate Bank Accounts
Consider opening separate bank accounts for your savings.
Then, once you put your saved money in it, you will know that it is not for spending. I know that it may sound like an unnecessary step, but it does work. It really helps you manage your money more effectively.
I am using Revolut where I have separate vaults for different kinds of expenditures or savings.
7. First Things First
The first thing you need to do when you get your paycheck is to allocate your money.
Start with your bills and your debt. You don’t want late fees or other penalties.
Then, transfer money into your savings account. You already know how much you can afford to save on a monthly basis. Do it now. If you don’t, you would subconsciously know that you have that money in your spending amount and will feel more comfortable spending it.
Lastly, you can calculate your remaining monthly expenditures and if there is still some money left, you can invest it. Whether it’s an ETF, Mutual Fund, or Cryptocurrency, that’s up to you.
The rest is for spending! Enjoy it!
I am sure that with time and effort, you can get better with money and achieve your financial goals. Let me wrap it up with a quote:
“A budget doesn’t limit your freedom; it gives you freedom.”
– Rachel Cruze
