The Basics of Budgeting and Saving Money
The word “budget” has begun to earn a negative reputation as it feels more like a punishment versus a benefit to your overall financial health. When it comes down to it, a budget is nothing more than a simple plan that outlines your sources of income and expenses on a monthly basis. Unfortunately, many people see a budget as a constraint that prevents them from hitting goals while enjoying the finer things.
However, nothing could be farther from the truth! A budget does not limit your freedom; rather, it enhances it! It’s all about being deliberate about where your money goes.
What Are the Benefits of Budgeting?
A budget will provide you with a plan of action and a clear picture of where your money goes each month. Budgeting will assist you in achieving your objectives, whether that means getting out of debt, saving for retirement, or simply keeping your grocery costs from spiralling out of control.
When you think of budgeting as just spending your money on purpose, you’ll discover that you have greater spending flexibility! Once you’ve budgeted for something, you’ll be able to spend it without feeling bad. Many people claim to have “extra” money when they set and keep to a realistic budget.
How to Make a Financial Budget
Whether you want to make a personal budget spreadsheet or just learn more about money management, start with these six steps:
- Calculate your monthly earnings, choose a budgeting strategy, and track your success.
- As a simple budgeting structure, use the 50/30/20 rule.
- Allow up to 50% for fixed lifestyle expenses (including debt repayment).
- 30% for savings.
- Set aside 20% for additional lifestyle spending
- Regular check-ins can help you track and manage your finances.
Recognize The Budgeting Process
Let’s take a look at calculating your after-tax income. If you get a regular paycheck, the amount you get is probably it. Although, if you have automatic deductions for a savings account, and health and life insurance, add them back in to obtain a fair picture of your savings and expenses. If you have additional sources of income, such as side hustles or other investments, deduct anything that lowers it, such as taxes and business expenditures.
Select A Budgeting Strategy
The first stage is to assess your current situation and values. Do a financial self-assessment if you’re not sure which path to pursue. Your current financial situation and objectives may provide some insight. Choose an option that meets your needs after you know where you stand and what you want to achieve. Any budget must account for all of your requirements, some of your wants, and — most importantly — emergency and long-term savings. The envelope method and the zero-based budget are two examples of budgeting plans.
The envelope budgeting method splits your money into many expenditure areas, such as bills, food, and travel. You’ll take that amount in cash and put it into an envelope once you’ve chosen how much you should spend on each area. Then, for that category’s expenses or purchases, just spend what’s left in that envelope. The goal is to keep you from overspending by restricting your spending options.
Zero-based budgeting entails allocating 100% of your income to spending, savings, and debt repayment. By the end of the month, your revenue minus your outgoings should equal zero. You can keep the same spending categories and amounts each month or change them up. If you come in under budget in a particular area at the end of the month, transfer the remaining funds to the next month’s budget or to another account, such as your emergency fund. It’s the same idea as the envelope method, which includes putting money into envelopes for different types of expenses.
Keep Track Of Your Progress
Keeping track of your expenditures is a good idea, as is using online budgeting and savings tools. When you have the correct tools on hand, saving money becomes a lot easier. A budgeting tool like Mint, for example, may help you keep track of your expenditures and manage your budget on the go. You can link all of your bank and credit accounts in one location to check how well you’re doing with your savings objectives. It’s also crucial to pick the correct spot to put your money. For example, a high-interest savings account might be useful for storing your emergency cash.
Although software tools are great for budgeting, we strongly advise seeking a professional in your field like MedTax.ca. We’ll not only help you organise your expenditures but also save you more money through tax deductions commonly missed by a traditional accountant.
Make Your Savings Plan Automated
As much as possible, automate your savings so that the money you’ve set aside for a certain reason arrives with minimum work on your part. It might be difficult to remember to save at times, so creating an automation is a simple method to keep on track with your budget. To create your emergency fund, set up automatic transfers from your checking account to your savings account. Automating contributions into several accounts guarantees that you save rather than spend, and compound interest may help your money increase consistently over time.
Every financial strategy is built on the foundation of budgeting. If you want to keep track of your finances, whether you’re living paycheck to paycheck or making six figures a year, you need to know where your money is going. Budgeting isn’t just about limiting your spending and eliminating all of your pleasures, contrary to popular belief. It’s all about figuring out how much money you have, where it goes, and how to effectively use your money!
Visit medtax.ca to learn more about how we can start budgeting your money today!