[New post] Exploring Personal Budgets as A tool for Financial Freedom
James.O posted: " The concept of a personal budget is most likely not new to you, however, not everyone has a positive attitude towards budgeting this is because a budget can sometimes be perceived as an instrument that limits financial freedom especially when it is aggre"
The concept of a personal budget is most likely not new to you, however, not everyone has a positive attitude towards budgeting this is because a budget can sometimes be perceived as an instrument that limits financial freedom especially when it is aggressively created. In reality, sticking to a properly prepared budget should improve the state of your finances and avoid future problems and the irony is it would actually grant you that financial freedom you seek.
What Does having a Budget Get you?
The advantages of having a personal budget include the following:
Understand your relationship with money: A budget can be used to track your income and expenses, thereby painting a clear picture of your finances. You will be able to spot patterns in your spending and savings and identify where to make adjustments
Save enough for the future: Having a good budget ensures that you are prepared for future expenses with your savings or emergency fund. This is an impressive way for you avoid having to go into debt to meet yearly or one-time payments and emergencies.
Get out or Stay out of Debt: Mapping out expenses in advance reduces the risk of overspending and can help you pay off debt you already have.
Help make your financial dreams come true: a new home, a great vacation, college educations for kids, a comfortable retirement.
Relieve stress: Finally a budget is a financial plan and one of the most important aspect of a plan is that it prepares you for the future. There is a certain peace in your mind knowing that whatever happens "You've got this"
Budgeting Habits To Adopt
Sticking to a budget can be quite hard the first time you try it, therefore before I show you how to develop a budget, let's explore the budgeting habits that can make your adjustment to your budget a landslide.
Enter Money When It Arrives: When a paycheck, birthday check, or any money at all arrives, that's the moment it should be entered in your budget. Not before, and not too long after. Not only does this make paydays even more magical, this gets you in the right mindset to only budget the money you have.
Pay yourself first: Following up from the above, once money comes in, set up some automatic transfers or put some cash aside for YOU. Paying yourself first ensures that you have the financial security to make future-you very happy. Even small amounts will grow into something larger, which can eventually pay for that vacation, buy your dream car Or maybe it helps you buy a house one day? if anyone deserves your hard earned cash, it's you.
Budget to zero: Budgeting to zero means that when you create your budget, your income minus your expenses add up to zero. Income - expenses = $0 Budgeting to zero gives you financial clarity, you give every dollar you earn a job, even if that job is savings or an extra loan payment. Budgeting to zero doesn't mean you spend every dollar you earn. Neither does it mean that you're stuck with your categories for the month. On the contrary, it is a great method to start a savings program by working your savings into your budget and to keep that budget flexible so it can change with whatever balls life throws at you.
Check the Budget Before Spending: A common budget pitfall is when you use your budget as an expense tracker alone but you do not let it influence your spending habits.
Want a new t-shirt? Well, how much is in your clothing category? $90? Ok, that'll get you a t-shirt! A downright supple t-shirt at that! This goes for going to the grocery store—check your budget before you pull out that debit card. The coffeeshop—check your
YNBA (youneedabudget.com )
On some days looking through your budget before you spend, you'll get a resounding YES to spend that money, and other times you'll get a NOT YET in response, and on others, you'll realize that a new pair of jeans just wasn't quite as important as your passing urge would have you believe. Think of your budget as an ever-present accountability partner.
Developing, Tracking, and Analyzing your Monthly Budget
Developing a budget
To develop a budget all you need to do is to write down estimates of what is going into your pocket (income) and what is coming out of your pocket (expenses) every month.
Your income would include salary, bonuses, commissions, dividends or interest, gifts e.tc
Your expenses would include the following categories: housing, utilities, automobile, food, entertainment and miscellaneous etc.
Estimate your income(s) and expenses ensuring that you make your budget to zero as explained above.
Tracking and analyzing
In the early days of budgeting, you might still be figuring out what your priorities are but as you on each month, you should be willing to track and analyze your budget and make adjustments as you go. When you make a change to your budget, it's because you're thinking, learning and adjusting. You'll find your groove with time and practice. Getting it right the first time is nowhere near as important as developing the habit of tweaking and refining.
Income tracking: is easy; use your paycheck and investment statements.
Expenses: are also fairly easy to track. You just need to be aware of them and develop a system to track them. Your system can rely on the following Steps: 1. Check register/debit card receipts. 2. Check your Credit card receipts—it is advisable that you have only one card and pay it off every month. 3. Check your Cash receipts—while these are more difficult to keep, make sure you do so. As you get more experienced, it will get easier to track these.
One way to do this is to immediately record your payment at the point of sale before you leave for instance you can record your fuel expenses while refining your tank before you leave the station. Also, you can adopt a practice of reconciling your income and expenses daily (probably while eating breakfast or at dinner time.) this allows you to avoid feeling overwhelmed down the road.
After tracking your finances you can then quickly analyze your budget. Where did you spend too much? Where didn't you need to spend as much? What else do you need to include next month? How do you set yourself up to save more in the future? What are your financial goals for next month and for the next twelve months?
Automating The Process?
Although preparing your budget manually should take less than an hour, YNBA(youneedabudget) has an app that will automate most of this process. You can link it to your bank account and asides from being a budgeting app you'll get personal coaching, a support community and real-time goal tracking. All for a fee of $14.99/month but you can try it free for 34days to see if it works for you. Also If you are a college student YNBA is free for you. So feel free to take advantage of this. Check it out.
Goodluck
Preparing a budget is key for your financial security but you have to focus first on building the habit.Your first budget won't be perfect but if you stick with the habit of adjusting it monthly (especially your expenses) it would serve you well on your path towards financial liberation.
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