“You should track your spending” - It is that annoying advice that you hear all the time, and that is because it is unavoidable and it works. When I hear the word budget, I thought time-consuming, past focused and a fun killer but I have found that it is one of the most critical first steps of your financial journey because you need to have a clear view of how much money you earn, and how much money you spend. In other words: you need a budget. By creating and maintaining a budget, it should only take 10 mins a month, but in return, provide you with control over your spending and making it all the easier to reach your big financial goals.
A budget is simply a spending plan that takes into account both current and future income and expenses. Having a budget keeps your spending in check and makes sure your savings are on track for the future. You can make it as straightforward or as complicated as you like. It is just about what works for you. People can do it with a notebook, an app or if you prefer a computer and a spreadsheet.
How to make a budget that takes no more than ten minutes
Step 1: Download the expenses from your bank statements and go through categorising the different expenses. Keep your categories simple and broad to make the process easier. Start with the big categories first, and work your way down. Do not feel like you need to account for every single cent spent. I track 90% of my spending, and the remainder is grouped into a category called “other.”
My tip: My main account, N26, automatically categorises the expenses for me, check if your bank does the same.
Step 2: Review where you are spending
It is not about knowing where every cent went but a general idea of where your money went so if necessary, you can make changes to your spending habits. By having it written down, you will be surprised at how much unintentional spending you are doing and how much potential you have for more saving.
My tip: A great chance to check out what automatic payments or subscriptions that you have signed up to, forgotten about and no longer use.
Step 3: Make financial goals or set a percentage of your salary that you aim to save.
Many of us feel like we don’t have enough money, and that saving will be more effortless when you receive a pay rise. The reality is that we are not smart in how to use the money we have and if we don’t control our spending habits then it is unlikely that we will ever reach financial goals because there will always be somewhere to spend that extra money.
I find it hard to make the sacrifices now because I kind of want it all, but I know that saving is going to be much easier and work way harder for me if I’m onto it now and that way I can have it all in the future too.
Step 4: Set a monthly reminder. Once you have the budget, you will need to stick to it regularly and periodically check that you’re hitting the budget goals. I find it is similar to the gym; you need to do it more than once to see results.
Reasons to keep a budget
1. It helps keep your eye on the prize.
Having a budget gives you control. If you know where your money is going each month, it’s a lot easier to make adjustments to help you reach your financial goals.
2. Budgeting will help address poor spending habits.
By building a budget, it will make you take control of your spending habits and help you to notice certain areas you are spending more than necessary. The best place to save is usually in our daily spending habits. I try to be more conscious of how and when I spend money while maintaining a similar lifestyle (being social, eating well & experiences).
3. It Helps You Prepare for Emergencies
Life is filled with unwanted surprises, and while you are dealing with this, you don’t want to be stressed and have your debts spiralling out of control. Your budget should include an emergency fund that consists of at least three month’s worth of living expenses.
4. Prioritising your money into things that you enjoy and make you feel good
Particularly as the world is becoming more of a cashless society, it is easy to tap your card and not even recognise how much you have spent. So by going through the budget process, you at least know where your money’s going, i.e. on another non-memorable night at the bar or towards something that you are passionate about and will give you joy and new memories.
In summary, a budget can help you determine your long-term goals and put you on the path of working towards them. Having a map of how to allocate your spending will ensure you can live within your means and work towards the purchase of those items such as travel, deposit on a house or even building your investment so you can leave yachting financially independent.
Information provided by goBuoyant is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Remember, the value of any investment can go down as well as up.
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