Here, we will outline three tips that will help you get the ball rolling on your budget. We will also be discussing the different types of budget plan you can choose from, depending on your needs. We will also give a short list of tools and apps that you can use to track your budget progress.
With the start of the new year, it is important to turn a new leaf and make better decisions regarding our finances. This is the year we say ‘no’ to debts and excesses. This is the year we say ‘no’ to unpaid bills. And this is definitely the year we say ‘yes’ to a budget plan and actually sticking with it! (Read: 4 Simple Money Resolutions to Start Your New Year Right)
If you’re looking for some tips on how to construct a budget plan that actually works, you’re definitely in the right place. Here, we will outline three tips that will help you get the ball rolling on your budget. We will also be discussing the different types of budget plan you can choose from, depending on your needs.
We will also give a short list of tools and apps that you can use to track your budget progress.
So what say you – shall we begin?
Step 1: Create an outline of your expenses vs your income
It all starts with your income. Write down the amount of your monthly income and deduct any mandatory expenses such as taxes and government benefits; the result is the figure you’ll be using for your planning session.
If you are a freelancer, write down an estimated figure based on the amount that you usually get from your freelancing gigs. Be realistic, as this will also double as your target income for the month.
If you are a business owner, write down your estimated monthly revenue and use this as your basis. Again, be realistic, as this will also serve as your monthly target income.
Now that you have a clear grasp of how much money will be coming in your bank accounts, it is time to make a list of your expenses.
Grab a pen and paper and list down all your expenses, going as far back as three months. Don’t discriminate – write down everything from the biggest (house rent, mortgage, bills, insurance, college fund) to the smallest (your daily dose of mocha frappuccino).
This part may take some time but try your best to be as specific and accurate as possible as this will be the foundation of your entire budget plan!
Step 2: Choose a budget plan that fits your lifestyle and needs
Not many people know this, but there are actually different methods you can use in budgeting your finances. In order to construct an effective and efficient budget plan, it is important to choose the method that perfectly fits your lifestyle and your needs.
So what are some budget types that you can employ? Let’s explore four:
A time-based budget plan is probably one of the most common and popular types of budgeting method available. It allows you to track any and all expenses that come in within a specific time frame – weekly, monthly, or yearly – and divide your income according to comings and goings of those expenses.
You can do this by listing down and categorizing all expenses as either “weekly”, “monthly” or “yearly”. Once you have identified and categorized your expenses, you can then allocate your income appropriately.
Erratic Income Plan
This budgeting method is especially suitable for freelancers and other people with irregular income. As you may imagine, it can be a little hard to maintain a regular budget plan if your income leans on the erratic side.
The technique here is to identify your priority areas such as bills, food and living allowance, and other important expenses. Allow your income to revolve around these expenses and make sure they are properly allocated with a budget every month.
Your remaining income can then be spent on other minor expenses or be put into a savings account.
Sometimes it’s great to practice frugality in spending by relying solely on your cash on hand for all your expenses, foregoing (at least for a time) the use of credit cards and other loans.
This is a great way to develop discipline and getting yourself back on your financial track, especially if and when you feel your spending is becoming a little bit out of control.
No matter how young or old you are, it is never too early or too late to plan for your future. Whether you want to save up for a retirement fund, college fund, a new house, or an upcoming family vacation, having a future-oriented budget will help you keep you on track and your eyes on the prize.
The best way to do this to dedicate a fixed portion of your monthly income into a separate account that is exclusively for your long-term plans. Exactly how much do you need to allocate?
Well, some people find it best to allocate as much as 30% of their net income on future goals. While this is a great practice, there is no need to feel pressured into allocating more than you can afford. Set aside what is realistic and work your way up from there.
Step 3: Track your progress using tools and apps
Congratulations! Now that you have identified your expenses and have (hopefully) chosen a budget method that suits you and your lifestyle, you have easily waltzed through the hardest part of budgeting. All that is left to do is to keep yourself on track with your budget plan.
Most people prefer to use spreadsheets such as Microsoft Excel or Google Sheets as these are powerful, dependable, yet very user-friendly financial tracking tool.
If you’re the creative type or simply love the jotting things down using pen and paper, you can also try bullet journaling. Not only is it a great way to track your expenses, you can also use it to track your thoughts, events, or even just how your day went!
Constructing a budget plan that actually works for you is more than depriving yourself of what you want in order to get what you need. It is more of finding the balance between your goals and your means.
Understandably, it might take a few trials and errors before you find which budget method works for you; then again, the key to a successful financial life is consistency. Keep trying and there is no doubt that you will eventually succeed!