Many people are afraid of creating a personal budget. They are nervous about what their finances will reveal, good or bad. But, what they don’t know is that their income is their biggest wealth-building tool.
The Importance of Budgeting
Budgeting is a necessary tool for managing your income. The point is that it will help to keep you out of overwhelming debt. Arming yourself with a budget can help you build a financial future that will give you more freedom.
This bad boy can help you manage your monthly expenses. Furthermore, you can track how much you earn versus how much you spend. It can keep you from overspending, which is always a good thing.
A budget can help you:
- Save up for a home;
- Eliminate debt(s);
- Build wealth;
- Live within your means;
- Prepare for unexpected expenses;
- Provide flexibility
- Build an emergency fund;
- Track your spending habits;
- Start your own business;
- Set financial goals;
- Free up cash;
- Reduce stress
With a classic budget, you will know where your money is going. Having one will give you greater control over your finances no matter your income.
Why Should You Budget?
If you want to stop worrying about your finances, enjoy the peace of mind a budget brings. You will benefit from breaking down your big goals into smaller, manageable steps.
A budget will better equip you for life’s unpredictable circumstances. When you handle your money well, you can afford big-ticket items. It may even help you notice spending issues and identify problem areas.
Now you can afford to buy a refrigerator, stove, or washer and dryer without running into debt. Without breaking a sweat, you can pay for expensive house repairs or regular car repairs.
Ways To Track Your Spending
Go old-school or stay new-school. Track your spending through budgeting tools or software, such as:
- Spreadsheets, such as Microsoft Excel;
- Budgeting apps;
- Pen and paper
Find out how you can combine your regular budget with an envelope system.
The spreadsheet method is old-school, so don’t expect anything fancy. Track and log your spending manually. Write your expenses in a notebook, or store them on a computer.
If you decide to store your spreadsheets on a computer, you can use free templates on Microsoft Excel. No need to worry about creating one from scratch. All you have to do is adjust the categories, expenses, and dollar amounts to fit your needs. It’s that simple!
Be sure to track all your receipts for inconsistencies. Also, you would have to create new spreadsheets every month, especially if your income is irregular.
Pen and Paper
This old-school, basic process involves writing down all your expenses. With this method, you would have to do everything from scratch.
As with the spreadsheet method, you would have to track your expenses manually. Creating new spreadsheets every month can be time-consuming but necessary.
If you love to write, this method will work for you. Also, you don’t have to worry about losing your notebook. Don’t forget to track all your receipts.
Stay new-school. Take your budget app with you wherever you go. You can download a free app or buy one. It depends on your budgeting needs and your available cash.
Automatically connect to your bank account(s). These apps will automatically update your budget with the latest transactions. You will notice where every penny is going with just a swipe.
Check out these budgeting apps:
- EveryDollar (my favorite)
- Fast Budget
- You need a budget
- Mint (most popular)
- Easy Budget
- Personal Capital
- Free Expense Tracker
- Pocket Guard
- My Budget Organizer
The Envelope System
You put your budget to work even more by combining it with an envelope budgeting system. This method is where old-school can meet new-school.
The goal is to avoid using your checking account, except for paying bills. Also, you will need to decide which categories you are going to switch to cash.
Start by dividing all your discretionary spending, by category, into different envelopes. Here are a few category ideas for you to consider:
- Miscellaneous spending
- Eating out
- Home improvement
- Car repairs
- Prescription eyeglasses
At the beginning of each month, withdraw the total amount for all envelope categories. Be sure to label each envelope and add your monthly allowed spending money to each one.
When you run out of money for a particular envelope, stop spending. Do not borrow from the other envelopes. That is a no, no! It’s okay to roll over any leftover money into the next month or spend it to your liking.
And finally, at the end of each month, add the receipts to each envelope. By adding them, you can spot spending trends or problem areas.
Remember Your Goals
It is vital that you build a budget and find one that works for you. It is not a “one size fits all,” as the old saying goes.
When you understand how much you can afford, you won’t need to burn into your finances. That way, if you want to splurge once in a while, you will know your spending limits. Now that’s spending with confidence.
Don’t forget your income is your biggest wealth-building tool. With your budget, you can begin to build wealth and give yourself true financial freedom.
Are you still scared of budgeting? Do you want to build wealth? A budget can put you in the driver’s seat. If you have any tips that have worked for you, please feel free to share them in the comments section. Like, share, or comment. Follow me for more great articles.