Things they didn’t tell us: How to Budget

A budget, the ‘Big B’, is one of those skills you acquire through trial and error. Budgets provide that fist glance into your current financial position. Why do people feel uneasy about budgeting though?

In my personal experience, budgets have the ability to speak truth to your spending habits, your attitude towards money and a test of your financial management skills. Therefore, the hesitancy lies in putting all your information on a paper or unto a screen and watching right before your eyes where your money is coming from and going. Your budget answers a lot of hard questions as well and it also serves as an accountability tool to keep you on track to living in control of your money and have more peace of mind.

The secret to budgeting is learning how to make it work for you and the consistency to keep going month after month. I have put together seven basic steps to get you started on your own budget.

1.????Calculate your monthly net income.

This means whatever your income is after taxes, you will simply jot down the remaining as your available cash. Sources of income can come from your 9-5 and side hustles etc. However, this amount will be used to cover your expenses and obligations.

2.????List all monthly expenses.

Some of the time you will find yourself having several expenses that are not considered material or enough to be mentioned. However, these are the things that we must be honest about with ourselves and what really is eating away at your income. When you list your expenses against your income, you will know where your dollars fall short or where you can better utilize your money.

3.????Explore and select a budgeting method.

There are quite a few budgeting methods but it’s more about which one suits you and your current lifestyle as well as simplicity and ease of use. This is because you don’t want to devote time trying to navigate one method when you could have started with something easier. Some of the common methods are the zero sum and the 50/30/20. Over the years I’ve grown accustomed to the zero-sum method where my income matches my expenses and leaves a zero balance. I picked up that method because I had a saving goal in mind and needed all my disposable income accounted for to the ‘T’. This method is perfect for people that have a fixed or consistent source of income or cash flow each month. After all expenses and debts are accounted for, any remaining portion of income is allocated towards emergency funds or your savings and investment goals. This helps to keep a tight leash on your money and would align you with your goals.

4.????Outline your needs and wants.

This step includes re-visiting your expenses and eliminating those that do not serve you or help you achieve your goals. In addition, you can use this step to see where you can shave off and minimize your spending. For example, money spent on clothing, subscriptions as previously mentioned, certain grocery items etc. What you can do is ask yourself, “Do I need this item this month or can it wait until next month? This re-trains your mind to focus more on your goals and avoid impulse shopping.

5.????Account for debts and other financial obligations.

A rule of thumb is to ensure your debts are not left for last and are fully accounted for against your income. Whether you have student loans, car payments, credit card payments or bank loans. It is crucial to honor your obligations as this is reflected on your credit report and is a boost to your net worth when you have decreasing debts. There are advantages to this as well where depending on the balance on these loans and the dates of maturity you can opt to consolidate and reduce your monthly payments on your overall debt.

6.????Trim your budget as time progresses.

Having a clear vision of your finances while putting in the work to maintain your budget, opens a pathway for you to confidently trim your budget as you get closer to your goals without the added remorse. Sometimes trimming your budget looks like purchasing grocery items after comparing prices, taking the bus instead of driving your car, cancelling subscriptions, exercising at home instead of the gym, you name it. It’s what you are willing to sacrifice in order to get closer to your goals. Where you have instances of not being able to trim your budget any further it leads you in the direction of answering the question “How can I increase my income?

7.????Set a time to revise your budget.

It is not uncommon to revise your budget. As time progresses, there are life changes that occur that affect your income and expenses. Revising your budget on a monthly or quarterly basis enables more flexibility as your lifestyle changes. Also, lifestyle changes can distort your focus especially with a higher paying job and the perception that you have more to spend. On the flip side, where your circumstances are affected by the loss of salary or income, it will require an immediate change in your budget so that you stay on track and continue the path to achieving your goals.

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After all we have covered in these seven steps you will have a clearer understanding that for one, budgets are not as bad as they are perceived. They are designed to help you get from point A to B once you give yourself grace to give them a chance to change your life. Secondly, you have a fair advantage of becoming a master of your own money to let it work for you and not the other way around. This list is not exhaustive, but it will provide you with the foundation for the first step in putting pen to paper and stepping in full gear to achieve your goals.

Do you currently budget? How has the journey been for you? As usual, it’s helpful to share with others who are on the same path as you because budgeting is not something they told us about adulthood.?