Dealing with finances is stressful. Unless you’re lucky enough to have won the lottery, it’s likely that you are living to some kind of budget, no matter how big or small. Being able to budget your money isn’t just about knowing where every penny is going. While that is helpful, it doesn’t mean you are budgeting correctly.
It’s said that you shouldn’t live to your means. Ideally, you need to have savings and some money left in your account each month to cover emergency expenses. If your washer broke down, could you immediately afford to cover it, or would you have to borrow? If you would have to borrow, it is fairly likely that you are not budgeting effectively. When you want to buy a big-ticket item like a house or a car, you have to learn to budget your money so you can make savings to afford a deposit or car finance repayments. You can Google “auto loan calculator for how much I can borrow”, but if you don’t have a deposit saved in the first place or understand how to make room in your current budget, there’s no use. So, how can you effectively budget your money so that if the need arises, you can afford a last-minute emergency?
- Have A Goal. The goal of budgeting isn’t to track every single bit of your cash, the goal is to learn how to control your spending so that you have a surplus. Even the richest person could live to the top of their means and therefore feel like they’re not getting anywhere with their money. It’s important to spend less than you make, and this is the goal of budgeting.
- Learn To Watch. While tracking every single purchase you make isn’t the goal of having a budget, it’s certainly a good way to learn where your money is disappearing off to each week. Spend a week writing down every single transaction you make, and you can then work out where you are going wrong with your budgeting.
- Deal In Cash. One of the biggest temptations is paying for things with a card. Plastic doesn’t tell you how much you are spending in any given transaction, it just feels like money in your pocket. By handling physical cash, you can see how much you are spending and watch the money shrink, which can make you think twice about purchases you make.
- Plan. Having a list of things that you need to purchase can really help you to budget. If you are purchasing a new car, you need to think about the price of the car, the insurance budget you have to spend and the tax you need to get it on the road. You also need to factor in gas money, expenses for repairs and even cleaning costs. Planning your budget correctly and allocating money will help you to understand what you can freely use at the end of each month. Once you understand this, your budget will fall into place.