The biggest issue with most budgets is that they simply do not work. They might take a typical month’s spending into consideration — but what about one-off expenses or birthdays?
Truthfully, many people give up on saving or creating any sort of budget at the first hurdle, instead opting to take out an easy online loan to cover a specific expense. Fortunately, budgeting your personal finance (without the need for a loan) is pretty straightforward, provided you are prepared to change your spending habits.
Putting in the time and effort to learn how to successfully budget personal finance is a great way to save yourself plenty of money in the long run. It may even help you to stay on top of your bills and debts as you move through your life.
So, if you’re looking for some straightforward tips to help you in terms of budgeting personal finances, you’ve come to the right place! Here are our top tips to get you on the right track.
Figure Out Why You Want to Budget
It may seem obvious but the first thing you must do when it comes to budgeting personal finance is to understand what you are doing, and why. The key to success is creating specific yet equally challenging objectives that you can then work towards as you actively try to keep your personal finance in check.
You may want to consider some of the following questions:
- What is truly important to you? For instance, do you want to do more traveling? Would you like to save money for a dream holiday? Or would you like to put a deposit down on a home?
- Are you thinking realistically about the types of budgeting that you can afford to do?
- Will you be able to remain motivated when it comes to budgeting your personal finances?
Understanding your expected objectives for saving will help you to stay on track with your financial goals even when things seem impossible.
Be As Accurate As Possible With Figures
It can be pretty tempting to try to undercut your expenses by underestimating the figure. However, if you are truly serious about saving some money, this will come back to hurt your progress later on.
Our advice here would be to track all of your expenses (and your income) within a typical month. Note down every transaction that you make, regardless of its size, so you can then work out how much money you spend on fixed expenses versus your variable expenses.
When you start planning a budget for personal finances, your best bet is to overestimate your expenditure rather than underestimate it. By doing this, you increase your chances of having cash left over and limit your chances of running short of cash.
Work Out Your Savings Goals
Another tip is to divide your money into both short and long-term savings goals. We’ve included some examples for you to take a look at below.
- Short-Term Goals: emergency funds, a dream vacation, new furniture for your home, or even a meal in a high-end restaurant.
- Long-Term Goals: a deposit for a home, paying off debts, retirement savings, or making renovations to your home.
Planning for both types of financial goals can make the bigger goals far less intimidating. It might also help you to feel more in control of your finances and might make your long-term goals seem far more attainable.
Calculate Fixed Expenses Versus Variable Expenses
If you’re looking to start effectively budgeting your personal finances, understanding exactly how much money is going in and out of your account every month is crucial. Your expenses are typically broken down into two categories: fixed versus variable.
Some fixed costs might include:
- Electricity and heating bills
- Rent or mortgage payments
- Student loan repayments
- Cost of Insurance
Variable costs are those that change weekly or monthly, such as:
- Having food in restaurants
- Grocery shopping
- Buying new clothes
- Social activities (concerts, nights out, or trips to the theater)
Fixed costs offer limited flexibility when it comes to budgeting your finances, yet variable costs offer plenty of flexibility. It doesn’t mean you need to stop having fun but instead encourages you to consider adopting a more mindful attitude when it comes to your everyday spending.
Set A Monthly Budget
And now we get to the most practical tip of them all: setting a realistic budget for the month. Before we get to this point, however, we must reiterate that this will vary depending on an individual’s circumstances. This means not everyone will have the same budget.
You should adopt the 50/20/30 rule when it comes to setting a monthly budget. This encourages you to look at your budget using the following steps:
- 50% towards your essential expenses such as bills or rent.
- 30% towards your wants or variable expenses.
- 20% straight into your savings or to pay off debts.
Whether you’re budgeting personal finances on a high or low budget, using this methodology will set you up for success.
Have A Contingency Plan
You should also set up a budgeting contingency plan for your personal finances. Preparing for any type of unexpected expense that may prevent you from sticking to your budget will put you ahead of the game and keep you from getting into large amounts of debt.
The simplest contingency plan is to have some form of emergency funds included in your budget. This might be as simple as saving a tiny percentage of your monthly income for a rainy day – to cover you when you need it the most. You might also want to consider a fallback budget that cuts out variable expenses.
Hopefully, after reading this article, you now have a much clearer idea of the steps you must implement to successfully budget your personal finance. Granted, the process might be a little tedious at first as you adjust to your new approach to spending.
But if you are committed to resolving your budget, you could set yourself up for some major financial success in the future.