Learn The Truth About Right Budgeting In The Next 8 Minutes
Take control of your money through the right budgeting method
Do you know that the right budgeting can change how your business functions?
Yes, only when it’s done right.
But do you also know that budgeting can be a mind-numbing process?
If you thought that it is simple, I’m afraid you’re damn wrong.
Honestly, budgeting sucks the energy, time, fun, and big dreams out of business. Many firms sink countless hours into writing budgets to get it right.
At some point in my professional career, I got submerged in the mix of formulating a company’s budget that’d be realistic. It was an edition of my mind juggling up images of complex budgeting spreadsheets and constant note-taking or repetitive balance checks.
The process came to one thing: if you don’t adopt the right budgeting, you’re bound to fail.
What is Budgeting?
In simple terms, a budget is a plan on how you’re going to spend your money. The thing is, if you don’t tell your money what to do, you’ll watch it slip through your fingers like thin air!
Formulating a budget brings to a halt senseless spending by bringing every penny you make to the vanguard of your brains. And if you win that battle, nothing you and your money can’t accomplish!
A budget should exude more control rather than anxiety and never complicates matters. There’re several budgeting methods, and a method might work for another person but never work for you.
The thing is, your budget should signify your goals and should accommodate your preferences.
If you’re not detailed-oriented, then abiding by someone who asks you to account for every penny spent may not fit well with you. You’re likely to fail.
Again, if you’re the kind of person who digs deeper into your bank statements, a budgeting method that probes you to save 20% and pay no regard to how you spent the rest would probably put you in an uncomfortable position.
The point is that the budgeting method that you pick should fit within your own limits and circumstances.
Which Budgeting Method Should I Follow?
Well…this question must be running in your mind and thinking about what method can work best for you. With that in mind, let’s run down some of the commonly known methods of budgeting.
1. Envelope Budgeting
A renowned method of budgeting that has been in existence since time in memorial. The reason why people follow it religiously is the fact that it’s systematic and straightforward.
How does it work?
You begin by first identifying your major expenses or spending classification. Then you allocate a spending limit for each of the envelope. As a right budgeting method, you’d only spend out from the right envelope and ensuring you put the budgeted amount on each of the envelopes.
Now, once you drain an envelope, that’s it; you’re done with that period.
It’s your first time in budgeting, and you’re planning to cut down on spending at the same time you mostly spend in cash.
2. Zero-based Budgeting
Every single month’s budget varies from time to time owing to unforeseen expenses and incomes. One thing for sure is that zero-based budgeting puts total disregard on your previous budget.
Instead, it begins from zero. This method encourages you to think through your spending — where you can put your hard-earned cash to the right use. It gets you on the driver’s seat to choose upfront on the purpose where you want your cash to land.
How does it work?
Now, you set your mind to this method; you need to validate every expense before including it in your official budget.
The primary purpose of this method is to minimize spending by perusing on where you can cut costs. Expert opinion suggests that if done right, ZBB changes the entire company’s culture and teach a return-on-investment (ROI) mentality.
The company’s philosophy will now shift from thinking about cost but more on value. The essence of ZBB is about putting your money where it matters the most.
As part of the right budgeting, ZBB helps you view spending from a different angle, making choices with absolute transparency rather than through the smog of the previous year’s figures.
Under Zero-based budgeting, the question instead shift from “Where can you cut cost?” to “Why should I spend?”
3. The 50/30/20 Rule of Budgeting
Once you’re on payroll and have a paycheck, sticking to a budget is the bedrock of establishing your financial health and power. Now, have you ever heard of the 50/30/20 rule of budgeting?
If you haven’t, don’t sweat! Because 50/30/20 rule of budgeting is one of the simplest ways to put boundaries for your spending while at the same time planning for the future.
It means you put 50% of your paycheck to needs, 30% to wants, and 20% into savings.
How does it work?
Put Aside 50% of Your Income After-Tax For Necessities.
See to it that you purpose not to spend more than 50% of your monthly paycheck on necessities such as rent, groceries, mobile phone bills, and internet. If it’s your first time, do a rough estimate on each of the recurring expenses you can expect each month.
The 50% is fair enough to negotiate yourself on your spending even though it might be difficult. If that’s the case, this is where you can perhaps start small and devises ways to cut down on your groceries bills or mobile calls.
If it goes beyond your reach, maybe you may consider probing things like the neighborhood that you can easily afford.
Juggle Around With 30% of Your Income
Every time you think of spending money “fun”, it never evades your mind. It could be building yourself some nice clothes, or having some drinks with your friends or getting sporty — the list goes on.
Now for you to get started with it, you must begin by mapping out how much you plan to spend on the so-called “fun.” Ensure to set it in more practicable categories within your budget. Again, this depends on your lifestyle and presumably your status.
You have to remind yourself that some things barely stick with us; they make us have that satisfaction of life, entertainment, delicacies, fashion, fancy cars, you name it.
But again, when you plan on this classification, you can constantly juggle around with the actual spending should you decide to spend.
Plot Ahead With at Least 20 Percent of Your Budget
It’s no doubt that every person bears a debt of some kind in life. It could be a mortgage, car loan, student loan, or even credit card debt that comes to every paycheck. And for that reason, we have the 20% part of the rule that goes towards repaying your debt.
It should be the best of your interest to pay off your debts as quickly as possible to minimize your financial burden.
The moment your monthly necessities are accounted for, and you’ve put parameters for month-to-month spending, make a standing dollar amount to cater for debt payment.
Now that you’ve known how to go about the 50/30/20 rule of budgeting, you need to start tracking your spending and be realistic about your habits. That is to say that it’s equally important to look out for how you’re spending measures up in real life. Having the right budgeting squarely depends on your spending and income as an individual.
Remember that a budget is a living document, and it can be fine-tuned to reflect what is actually possible in your life. You have to be good at your words and find something that works for you.
Bonus Budgeting Tips
Any plans to take your budget to the next level? I bet you do!
Now, you can walk yourself through the following budget tips below. And as you follow through this route, get ready because you’re bound to experience a significant money makeover.
Modify Your Budget
If you’ve reached this far, you’re a professional budgeter, so you can now start tracking your spending. But in the event you fall short of your budget, what should you do?
Easy! Make adjustments. For instance, you went to your friend’s bridal shower and spent more than you envisaged. In an actual sense, it wiped out your entire restaurant category for the month, leaving you with a deficit. Don’t beat yourself up!
You only need to pull up your budget and identify from the various categories you can find spare cash. Remember to take note of the change in your budget.
Remain Motivated to Budget
Of course, by now, you must have known that budgeting is a lifestyle, not just a plan. This should motivate you to keep on track as you anticipate reaching your big money goals by creating healthy budgeting habits.
How to Budget for Unanticipated Expenses
The prudent way to prepare for unforeseen expenses is to expect them. You may as well call then “unforeseen” expenses. These could be your car breaking down on your way to work, or your internet cables wearing out, and your phone getting lost.
The point is that you must be ready for whatever comes your way, and with these steps:
1. Draft a list of possible unforeseen or unanticipated expenses.
2. Approximate the cost of each expense.
3. Settle on how much money you’ll put against each expense every month.
4. Label a line item in your budget for each expense and formulate a fund in your budget. Having a fund means you’re ready for any unforeseen expense life might throw at you.
Do you know what budgeting for unanticipated expenses does? It actually safeguards your emergency fund from depletion from senseless spending.
When it comes to budgeting and planning, it gets to a point where your income is irregular. This may apply to freelancers and commission-based employees. How then do you budget in such a scenario?
1. Establish the lowermost possible income for the forthcoming month by looking at what you’ve carried forward the last few months
2. Budget based on the figure, covering your necessities first and then your wants.
3. Whatever extra money you make, add it up to your budget.
This transformation journey on how you spend will require a lot of discipline and commitment as an individual. Once you’ve learnt how to manage your budget, it keeps you at bay from being indebted and having a smooth spending spirit. Everything is possible; you only need to try on what works well for you.
