A Guide To Budgeting And How To Do It Right 

Post : May 16, 2022

What is a budget? A budget is a spending plan based on your income and expenditure, and it evaluates how much money you would make and spend over a specific period. 

Why is a budget important? A budget helps you balance your income and expenses and reach your financial goals. It's simple as that, but many of us fail to understand it. 

Having a budget ensures that you always have enough money for your needs. A budget need not be rigid. You can always put away money to do things you love without overspending. Here's a concise piece to understand budgeting if you're struggling with your budget. 

How To Make A Budget?

If you are new to budgeting, it is usual to be a little lost. Here is an insight on how to make a proper budget. 

1. Calculate your income. 

Identify the amount of money you have coming in and when. If your income is not regular, you can evaluate an average amount. 

If you have variable incomes flowing in, make a list of your sources and how often you receive your pay. 

2. Track your expenses. 

Keeping track of expenditures and recording what you spend on income will help you understand what you are spending money most on and help you cut back on unnecessary expenses. 

When it comes to expenses, there are 2 types. 

Fixed expenses - Expenses that remain constant and you cut back on are fixed expenses. Fixed expenses include :

  • Rent or mortgage. 
  • Phone and utility bills. 
  • Taxes.
  • Childcare costs. 
  • Insurance premiums and loan payments.
  • Tuition Fees.

Variable expenses - Regular variable expenses fall under variable expenses. Unlike fixed expenses, variable expenses are hard to predict. This doesn't mean that variable expenses are unnecessary and extra; necessary (variable) expenses fall under this category. variable expenses include:

  • Groceries.
  • Personal and self-care. 
  • Medical expenses.
  • Transport and Gasoline expenses. 
  • Clothing
  • Entertainment, Hobbies, and Recreational activities.

Analyzing your bills and bank statements can help you understand what you've spent on and whether you have overspent or not. 

3. Set a spending limit. 

Once you have calculated your expenses, you can identify instances during which you have overspent.

There are costs spent on "needs" and "wants". Although you can't cut back on your needs, you can trim down a little on your wants. 

You don't have to be too hard on yourself about your limits, and you can always treat yourself even if it means it costs a bit extra. But make sure you don't go overboard and forget your limits. It's better to make expensive calculative purchases than spontaneous costly purchases. 

4. Set your goals. 

Budgeting can undoubtedly help you reach your goals. Especially if you have financial goals, budgeting is the best way to achieve them. 

If you don't have any financial goals, you can have a savings goal. 

The money you cut off from unwanted expenditures can contribute to your savings. Having savings is vital as unexpected costs can occur at any time. 

Saving a little bit regularly can make a vast difference. 

5. Stay on Track. 

Making a budget doesn't help if you don't stick to it. Yes, you might get distracted sometimes but make sure you don't get ahead of yourself. 

You might have to adapt to a new lifestyle and a few habits to stick to your budget, but it will be worth it. 

But sometimes…just sometimes, you may feel like you need a professional's help when it comes to getting loans to build your dream house or when you're looking for low doc loans, and many more. If you feel so, talk to us

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