Are you saving regularly to reach your goals? Or are you making ends meet, but can’t seem to get ahead on a small income? Whatever your money situation, knowing how to create a budget that really works is very important.
It allows you to know, track and control where your money goes. It really pays for you to find out how to budget your money. Know this – keep to a successful budget and you can become rich.
In fact, having a budget will help you reach your retirement goals earlier. How much do you need for your retirement? You’ll find the answers here.
To most folks, the word ‘budget’ often brings to mind a bread and beans kind of life. But this need not be the case. You don’t need to deprive yourself and your family. You simply need to decide on how to prioritize your spending and become a more value-conscious smart shopper.
Are you thinking of starting your budget, but keep putting it off? Do you lack the motivation to start your budget?
You may be feeling unsure of what exactly you need to do to create a budget. Maybe budgeting just seems kind of complicated. Or you’ve read tons of posts on this, but the more you read, the more overwhelming it gets.
Rest assured that once you make a start on your budget, you’ll get more familiar and will be able to fine-tune it. The key is to take the first of a number of steps to begin your budget.
By the end of this post, you’ll likely be eager to begin your own budget – you’ll find that budgeting is not as complex as it’s often made out to be. And remember – it really pays to find out how to budget your money and become rich.
To create a successful budget, you’ll need 3 essential ingredients.
Be prepared to set aside some time for it. You’ll need time to consolidate your bills.
The next is honesty. You need to be really frank with yourself. Avoid any self-denial. It’s okay to make money mistakes, but be brave enough to learn from mistakes. This makes it easier to improve and succeed in your budget.
The last is flexibility.
Make some adjustments if needed as you progress. Ultimately, you’re in control – your budget is meant to be your servant.
What’s a Budget?
A budget is a simple plan that summarizes how much money is coming in (total income after tax), MINUS how much money is being spent over a fixed period of time.
Take 3 months’ total income minus 3 months’ total spending. Do you have a surplus? Neutral? Or a deficit? 3 months gives you a clearer picture of your finances. Avoid taking a month that may have a big annual bill.
What’s your result?
If there’s money left over, you’re on the right track 🙂 Having a budget is likely to increase your savings even more.
If you’re spending more than you earn, then you are actually in debt and becoming more in debt over time! To have a better financial future, you really need to start a budget now.
Your goal needs to be to always aim for a surplus. Having a surplus makes you more secure in your finances. It really pays to find out how to budget your money and become rich.
For a good chance at success, the most important part of a budget is to understand the ‘why’.
Why You Need to Budget
There are many good reasons to budget. Having a proper budget:
-Gives you a clearer overview of what’s going on with your money. For example, do you have extra money? Are you breaking even? Worse, are you getting a deficit at the end of each month?
-Helps you to manage your money. For example, if you are spending way too much money on some things that you can’t really afford, you can take effective steps to cut back.
-Helps you to reach your goals. With a good budget in place, you’ll know that the money needed for your vacation, Christmas spending, birthday presents, and retirement will be there. Budgeting makes your wishes come true. Knowing this gives you peace of mind 🙂
-Provides you with a clear purpose and direction. For example, you’ll know what to do rather than wonder what to do with your hard-earned money.
-Helps you to plan ahead. For example, you know that you’ll be more prepared in case there’re unexpected emergencies.
-Motivates you and gives you money solutions when the going gets tough.
-Greatly improves personal relationships with your other significant half. According to this CNBC article, money is the leading cause of stress in relationships.
Having a budget helps everyone to be open about their finances, and encourages co-operation. Couples can set goals together and use their budget to work towards their goals. This way, they won’t blame each other over money and spending.
So, as you can see from the many reasons above, it pays to find out how to budget your money and become rich.
For those of you who prefer to be hands off, you can get the best budget apps and finance tools to make it easy for yourself here.
In fact, one of them is a nifty little app that saves and invests for you at the same time. You can get a $5 bonus by signing up here. Featured in a CNN article, this app has helped 650,000 users save $25 million.
What a budget must never be
-A budget must never be rigid.
Why? Your circumstances can change – work hours may be cut back. Car problems can surface. So, your budget has to reflect your current situation as far as possible, for it to be effective. What’s relevant 6 months ago may not apply now. You do need to be flexible and modify your budget as and when necessary.
-A budget must never be too ambitious.
It’s human to set higher goals in many areas, but there is a big risk – goals that are not really practical and doable can only mean not succeeding in your budget.
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You need to develop a sustainable savings habit and polish your budgeting skills over time. I know it’s exciting to read the success stories of others, and it’s so tempting to address all your money areas at once. But it’s more prudent to choose one area to focus on. Start by thinking about how much spending you’re willing to reduce, without negatively impacting your life too much.
James Clear, author of How Long Does It Actually Take to Form a New Habit? (Backed by Science), says that new habits take an average of 66 days to form. So, you will succeed in your budget when you give yourself time to adjust to your new budget. Remember to be patient and kind to yourself. Do what you can. Never compare to others. Budgeting is a work in progress for me too.
If you find that the areas you choose to cut down on is too hard, reduce the targeted saving amount, or change to an easier area to focus on. You need an initial success as it’ll encourage you to keep moving ahead in your budgeting.
In a budget, these are some considerations for you to think about. The three basic needs are:
Food, housing and transport.
Do you live free? Or rent? Or have a mortgage?
What about your family? How many persons are in your household? Do you have young kids, other dependents, pets? How many?
What are you saving for? An emergency fund, house deposit, holiday, or retirement?
Do you have any debts—credit card, hire purchase, car loan, personal loan?
What You Need to Get Started on Your Budget
-Spending records – receipts from shopping, bank statements and bills from the past three months at least. These should include bigger expenses like rent, mortgage, hire purchase, credit cards, phone, power, insurance and even things like parking fees or spending on snacks.
-A list of things we pay for less regularly, like vehicle licensing, medical expenses, gifts and holidays.
-Income details, whether regular or casual, as well as bank interest.
-Savings you have in your bank account or retirement funds.
Yes, gathering these types of information does require some time and effort on your part, but the rewards that come with budgeting will definitely be worth your while. It pays to find out how to budget your money and become rich.
How to Budget Your Money and Become Rich
Most folks will adamantly say that they have already trimmed things down to the bare minimum – there’s absolutely nothing else they can cut back. But the key to success is that you need to look at your spending more closely.
9 Tips to Spring Clean Your Budget helps you examine the areas of your budget that need closer scrutiny.
Go for Basic or Budget Brands to Save
In your grocery spending and food spending, look at the numbers. What’s the amount of spending? Do you eat out quite a lot? Eating out can be quite costly, and cutting back on outside meals will save you a lot of money. You can use this $5 Meal Plan to help you save on food.
(This post contains affiliate links. I may receive a small compensation if you purchase through these links. You do not pay extra. Please read my disclosure policy. I only recommend products that I trust and have received positive reviews).
Do you buy your lunch near your workplace? What sort of packed lunch do you take to work? Is it often gourmet deli food or a more basic sandwich? Perhaps you could have fewer gourmet lunches and save in that area.
When you buy groceries, do you habitually buy a well-known brand or a budget brand? If you tend to buy the better known brands, it pays to try out the budget brands and see if they are good value. In many cases, I’ve found that budget brands are better value than well-known brands, but have a much lower price 🙂
By the way, look for the cheaper brands at the top or bottom of supermarket shelves. The well-known brands tend to be strategically placed more or less at eye level.
Cut Down on Food Wastage and Spoilage
Discover how these 20 practical ways will hugely reduce your food wastage
Use Timing to Your Advantage
Think of timing. Do you buy fruits and vegetables that are in season? They’re usually cheaper in season. Or do you habitually buy what you feel like eating?
On a weekend night, I chanced upon some discounted speciality breads on sale at my local supermarket that I hadn’t encountered before. That was a new discovery due to timing.
Do you often buy your meals? If you’re looking to buy takeaways cheap, have a read of this post.
If you’re looking for more saving tips, read these:
Start Small At First
Start with small goals first that are not likely to impact you too much. Even saving $5 a week for a start is a small victory. Small victories show that you know how to budget your money. Your budget can then be scaled up to raise your savings level.
Get Help and Support
Get your other half to help out, whether it’s moral support or looking for better deals. Both of you need to talk about and agree on your budget goals. This will increase your likelihood of your success.
Enlist your family or friends for moral support. Why don’t you challenge one another to stick to the budgeting plan, and discuss it regularly, like once a week?
Remind Yourself about Your Budget
Write reminders to yourself and stick it in areas you usually come across like bathroom mirrors or fridge doors.
Remind yourself of successes – display a note such as “I saved $20 on groceries last week”.
Reward Yourself When You Budget Your Money Well
Celebrate your progress, no matter how small. Rewarding yourself will keep you going. Don’t wait till you’ve saved $xxx to reward yourself.
Imagine . . .
Imagine how you’ll feel when you achieve your budgeting goals. You’ll feel great when you’ve saved up the money to buy a 2-week vacation to the Bahamas, a holiday you’ve always dreamed about. You’ll feel amazing when you’ve paid off all your credit card debt!
You may like to read more about budgeting in How to budget and Save Like a Frugal Ninja.
This is another good read that covers 30 Budgeting mistakes made and the solutions you should use. Find out if you’ve made these mistakes too and what you can do to solve them.
Feeling more confident about starting a budget now?
By using the tips that I’ve talked about above, you now know the basics of budgeting – the what, why and how, as well as what not to do.
With this knowledge, you should have a solid base on which to build a sustainable, flexible and successful budget that will give you complete control over your finances.
Thank you for reading this article.
Please share this post so that others can make a start on budgeting too.
What are your thoughts on budgeting?
What were your money successes or mistakes?
Did I miss something?
Let me know below 🙂