Are you facing difficulties in creating or following your budget? Don’t worry, it’s normal to do that especially if it’s your first time. Even if you have been following your budget for some time now, it can still be easy to step out of it once in a while, which is not cool.
Making mistakes in your budgeting may turn into a lack of cash when you need it the most. Of course, you can always choose the option of taking some kind of loan like Spot Loans, but first, let’s look at some budgeting strategies that will help you keep your budget in good shape.
Especially these days, when inflation is about to get out of control. Due to Statista reports, last month, the average rate of inflation got raised to 4.2%, which clearly shows that the latest surge in consumer prices should be taken into consideration.
So, if you need tips to help you create a better budget that is easy to follow, this blog article is just for you.
How to Make an Effective Budget Plan?
1. Figure Out Your Monthly Net Income
We’ll take an example. Let’s say you make about $700 net income in a month after taxation. This figure will be easier to determine if you are employed and get paid monthly with a fixed salary. If you are self-employed, determining your monthly income will not be that direct.
You’ll need to gather up your total income in all your income sources for the last three or four months and figure out the average. Try picking the minimum amount, that is, the month you got the lowest income, and create a budget with that amount.
In some cases, it can also be advisable to pick the mode amount. That is the amount that has occurred several times in a month. For instance, if in January, you had $720, February with $700, and March with $720, it would be better to pick the $720.
2. List All Your ‘Needs’ Expenses And Find the Total
Expenses can be categorized into wants and needs. Needs are the items that you really need and will experience dire consequences if you fail to take care of them.
The needs expenses can include:
- Utilities like water, electricity, gas
- WIFI payments
- Food and groceries
- Debt payments
- Home shopping for things like cooking oil, salt, detergent, and more.
- Personal care products like moisturizers, make-up, hair products, perfumes, and many more.
- Insurance payments
- Retirement payments
3. List All Your ‘Wants’ Expenses And Find the Totals
Wants are the expenses that you can do without but still need to make your life comfortable. The wants expenses include:
- Clothing like clothes, shoes, and jewelry.
- Gym membership
- Eating out
Make sure you list all your wants together with their corresponding charges, that is anything you feel you will need to make your life comfortable. You’ll evaluate the prices later. Do the same thing for your needs.
4. Set a Fixed Amount for the Variable Expenses And Sum Up the Expenses
Some expenses like rent, insurance, retirement payments, Wi-Fi, Gym membership, and debt payments are fixed since the amount will always remain the same month after month. However, expenses like utilities for gas, water, and electricity will not be fixed since the charges alternate according to the amount of the product used.
After categorizing the expenses, set a fixed maximum amount for each one of the variable expenses based on the past payments. For instance, if in the last six months you have been paying electricity bills ranging from $50 to $55, you can set the fixed amount to the maximum of $55. Sum all the utility prices to have one fixed price.
Do the same with other expenses including clothes. Set a fixed amount that you’ll be using for clothing, entertainment, phone charges (for calling and SMS), and eating out.
After listing all your needs and wants with their corresponding charges, sum them up to figure out the total.
5. Create Your First Draft Budget
Once you have the list ready, creating the budget will not be problematic at all. Below is a personal budget example. We’ll take an example of an individual earning $700 in a month.
|Subscriptions for TV, Netflix, and more if you have any.||$50|
Have you identified the problem? Yeap, that’s right. The expenses are higher than the income. That is why this is called the first draft budget. It is used to list all the expenses you’ll need and help in the improvement section.
After creating the first draft, it’s time for the next point.
6. Make Modifications to Your Budget
From our example above, the amount of the expenses was higher than the income amount. So, to balance the amounts, we’ll need to figure out the expenses to cut out or reduce. For instance, we can cut out Netflix subscriptions or reduce the plan to a basic level. That is, you can pay for fewer movies or fewer TV stations for, let’s say $30.
We can also reduce the entertainment charges to $30 and eating out to $10. If you need more money for entertainment, it will be better to move to a less expensive house.
7. Create a Final Budget
After making the required modifications, here is the final budget strategy example.
|Subscriptions for TV, Netflix, and more if you have any.||$30|
Subtracting the income with the expenses we get:
700 – 695 = 5
That is an extra $5 to your budget, it will be advisable to add it up to your debts for instance the payday loans until completion. The above budget is just an example. Everybody has different requirements and income levels and hence it will be advisable to create a budget based on your conditions.
If you want to finish paying your debts faster, consider increasing your income level. Do this through getting another part-time job such as freelancing, babysitting in the evening or on the weekends, walking people’s pets, delivery service, and more.
Once the debt is over, you can opt to continue with the part-time jobs or leave them.
A budget can help you reach your financial goals if only you know how to create an effective one. Follow the above steps for a great simple budget.