Have you ever wondered why runners as Eluid Kipchoge the Kenya Goat win their races? You might be tempted to answer that it’s because they practice hard or perhaps they are born runners. Well in as much as this is true, I want to chip in here that one of the key factors that contributes to a runner’s success is learning how to stay on track. This rule of game, applies to all facet of life including budgeting.
What is budgeting? Budgeting is the conscious act of writing down and managing your expenses that you’re going to carry out either daily, weekly or monthly according to your income.
Next, what budgeting tip(s) would help you to stay on track? The key tip(s), which would help you stay on your budgeting track is having the ability to define your financial goals and setting a realistic time frame. Without having a clear definition, you will drift aimlessly through your finances. Moreover setting a realistic time is what makes the actualization of your budgeting plans less cumbersome.
1. Importance of Financial Goal Setting
Setting goals gives your budgeting efforts the ability to thrive. It provides you with a framework for your spending and saving decisions. In addition to these, setting financial goals also helps you in achieving:
1. Increased financial discipline
2. Improved saving and investing
3. Reduced financial stress
4. Enhanced financial flexibility
5. Better alignment with long-term vision
Types of Financial Goals
The goal isn’t money the goal is how you use the money, this is why setting financial goals are very important because they help us as individuals to stay on our budgeting track. Haven said these, we have two types of financial goals and they are, short-term and long-term. To attain financial stability it’s very important to know which of your financial goals are of these two.
1. Short-Term Goals
Short-term goals are things you could achieve in days, months or perhaps within few years. They take less time to be achieved and examples of these short terms goals are:
1. Saving for a dream vacation
2. Building a safety net with an emergency fund
3. Paying off credit card debt
4. Financing a car purchase
2. Long-Term Goals
Are you planning on buying your dream house, saving up for your child’s education or investing for your retirement? If yes, then these are long term goals. Based on the fact that long term goals take time to come to fruition, you need to be ready to apply patience, persistence, and planning.
Above all for effective financial goal actualization, either short or long term you need to understand the place of prioritization. Prioritization is the act of putting some needs above others.
Personal Finance Tips for Goal Visualization
It is what you vision you achieve, to be able to visualize your goals, create a vision board or use budgeting apps that allow you to visualize your goals seamlessly. Your ability to do this, will increase you motivation to stick to your budget and also cause you to see the progress you’re making towards achieving your aim.
2. Effective Budgeting Methods
With your goals in mind, the next step I’ll encourage you to take is to choose an effective budgeting method that suits your lifestyle. However here are the methods you can choose from:
1. Zero-Based Budgeting: In this method, every dollar of income is assigned a specific role, whether it’s for expenses, savings, or debt repayment. The goal is to have your income minus expenses equal zero at the end of the month.
2. 50/30/20 Rule: This simple rule divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment. This method provides a balanced approach to budgeting.
3. Envelope System: This cash-based system involves dividing your budget into categories and placing cash into envelopes for each. When the cash is gone, so is your budget for that category.
How to Choose the Right Method for Your Needs
There are certain factors to consider before deciding what budget method would work best for your needs; these factors are what help you in making the right choice. The question is what are these factors?
Income: considering what you earn will determine the needs you want to meet at a particular time.
Time: most needs are attained over a given period, this is why it’s good that as you plan you should put time into consideration.
Cost: taking note of cost when outlining your needs is very important; because, it helps you to know the amount of money to put in to meet them.
Priority: this is very crucial, as human we have an insatiable need but what helps us to stay afloat of these needs is priority which is called scale of preference in economics. You can’t meet all of your needs at once because of limited resources however you can prioritize them based on ‘’importance and money’’ at hand.
Availability: how available are your needs in the market? When you take into consideration the availability of your needs in the market, this helps you to know how to acquire them. Sometimes some needs can be affected by scarcity. Take for example there are certain foods that are seasonal and as a result they become scarce, it’s advisable that you buy these foods in bulk and store them well to avoid being stranded when they are out of season.
Finally when you consider these factors, you would be able to figure out if you prefer the structure method, i.e the zero-based budgeting or, if you want something straightforward, which is the 50/30/20 rule.
3. Creating and Maintaining a Budget Plan
When an architecture wants to build a house they start by designing a building plan and when a teacher wants to teach, they start with a lesson plan likewise when a person wants to work with a budget they start by creating a budget plan. Creating a budget plan is where the game begins. Here’s how to get started.
Steps to Create a Budget Plan
- Analyzing Income and Expenses: Start by listing all your sources of income and categorizing your expenses. At this point, you need to be thorough—include everything from rent to daily coffee purchases.
2. Setting Spending Limits: Based on your analysis, determine how much you can allocate to each of your needs per time. Most importantly don’t forget to save.
Monthly Budgeting Tips for Consistency
If you want to enjoy financial stability as a result of your budgeting habit, then you should be ready to apply consistency. Haven said these, here’s how to stay consistent with your budget.
- Set a specific day each month to review and adjust your budget. This practice keeps you accountable and allows you to make necessary changes as your financial situation evolves.
- Be conscious of your spending. When you’re conscious of your spending, you will want to budget before spending.
- Be realistic with your plans. You’ll agree with me that there are some plans that are feasible. When your budget is stock with unrealistic goals, it becomes difficult to achieve and this is what results in inconsistency.
- Consult an expert. There are expert finance advisers that can point out or give you advance budgeting tips that can help you stay consistent with your budget.
- Automating Savings and Bill Payments. Set up automatic transfers to your savings account and automate bill payments to ensure you never miss a due date.
- Regularly Reviewing Your Budget. Schedule monthly check-ins to assess your spending and progress. This practice can help you stay focused, motivated and consistent.
- Read finance books. There are books that have good tips and when applied they would help you to become consistent with your monthly budget. An example of such book is – How to budget and manage your money.
4. Tools for Budget Tracking (Apps, Spreadsheets)
Budgeting tools are based on preference. You may prefer some budgeting apps because of how they help you track your budget without you losing sleep. My point is use tools that work for you. Budgeting apps like Mint or YNAB can help you to simplify tracking, while a simple spreadsheet can help you maintain a personalized budget.
Overcoming Budgeting Challenges
Challenges are part of life and as such they are bound to come. There are days, you would be dealing with an unexpected faulty car, paying for a plumbing service or settling medical bills, however there are ways to cushion the gravity of these challenges by…
1. Building an emergency fund: We live on earth and life happens. The best way to handle unforeseen challenges or challenges in general is building an emergency fund. An emergency fund is little sum of money you set aside every day, or week to meet unexpected needs.
2. Staying Motivated during Setbacks: challenges are bound to arise, but when they come you should be ready to face them. The best way to handle challenges is to stay motivated, and remind yourself of your goals. Remember that these challenges are temporal not permanent, thus, focus on your progress rather than perfection, and learn to celebrate small wins.
5. Saving Money Tips
Expenses are never ending and income is never sufficient, all these make saving difficult. However when you save you’re paying yourself which is a very good practice. Therefore to make saving less cumbersome here are some tips to help you in your journey.
- Put yourself first
- Cut unnecessary expenses
- Buy in bulk
- Cook rather than eating out regular
- Don’t yield to impulse spending only buy what you’ve budgeted
- Look for good deals like coupon, promo or black Friday deals
- Engage in DIY projects
- Cancel unused subscriptions
I so much believe that what you set your heart to do, is what you achieve. To make saving flexible and part of your lifestyle you can carry out what they call in accounting a recurrent saving.
A recurrent saving is where a person orders their bank to take a certain amount of money from their income, either weekly or monthly. This is also known as automated saving. The bank takes an agreed amount of money from your earnings periodically based on your instructions.
Debt Management Tips for Maintaining a Healthy Budget
In chapter 4 of The Richest Man in Babylon, Arkad taught the camel seller this debt management tip; ”And, from the remaining five-tenths, put aside three-tenths for the repayment of thy debts.
I strongly believe this method is the best way to get out of debt without sweat. You can inculcate this method and manage your debt easily and still be able to sustain with the rest of your income.
However you can also consider repaying your debt using the snowball or avalanche methods. The snowball entails that you start with the smallest and then move to the top, while the avalanche encourages you to begin with the highest then move to the lowest debt.
Wrapping up
Life is unpredictable however understanding what budgeting tip(s) would help you to stay on track is vital for maintaining stability in your finance. This is why I’d encourage you to start by defining your goals, choosing an effective budgeting method, tracking your spending, and having a positive mindset. Remember, the success of your financial life is in your hands and it starts with a proper budgeting so don’t trivialize it.
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Frequently Asked Questions (FAQ)
1. What is the best budgeting method for beginners?Â
The 50/30/20 rule is often recommended for beginners because it’s straightforward and easy to follow.
2. How can I stick to my budget?Â
You can stick to your budget by automating your savings and bill payments. In addition, you can regularly review your budget and set specific spending limits to help stay on track.
3. What should I include in my budget?Â
You should include all your sources of income, fixed expenses like rent, variable expenses like groceries, savings, and debt repayments.
4. How do I handle unexpected expenses?Â
Build an emergency fund to cover unexpected costs. Aim to save three to six months’ worth of living expenses.
5. How often should I review my budget?Â
Review your budget monthly to assess your spending, make adjustments, and also stay accountable to your financial goals.
