The Importance of BudgetingApr 10, 2023
Financial literacy is important for everyone. Without understanding your financial position and situation, it can be hard to make educated decisions around spending money (which, spoiler alert, is a factor in pretty much all the decisions you’ll ever make). Plus, with so many ways to invest today, and the ever complicated taxes to pay, understanding the world of money and finance is more important than ever.
So where can you start? A budget is a good first step and arguably the most important part of money management. Knowing how much money you are making and how much you are spending is critical to better understanding your financial picture.
While the idea isn’t complicated - if you are spending more money than you are bringing in on a regular basis, then you will start to build up debt instead of savings - it’s easier said than done. Plus, if you’re making more money than you are spending, then you have to figure out the best things to do with that leftover balance - whether you save it, invest it, etc.
Having a budget can help you make important decisions, from the small every day of ordering out to the big expenses of paying back student loans, investing in yourself, buying a home, etc. Awareness is the key. The worst way to manage your finances is to just ignore them and hope it all works out.
Even though you may not be a financial expert, by simply creating a budget and better understanding how much money you have to spend, you are making a pivotal step in the right direction. Need some guidance on getting started? We got you covered.
Creating a Budget: Find Resources to Support You.
Sometimes creating and sticking to a budget on our own is too much to handle. Luckily, there are a lot of online budgeting tools and resources, like YNAB (You Need a Budget), Mint.com, and GoodBudget. These all have apps to include budgets on the go and help you track the money you are spending by linking your accounts and credit cards. If one of these tools works for you, great!
Of course, you can also work to create your own budget that feels more personal and realistic. Start with listing out your fixed expenses, like rent, electric bills, internet bills, cell phone, etc. These likely won’t vary from month to month, so you can easily factor them into your budget.
Then add in your variable expenses, like shopping, personal care, eating out, social activities etc. The best way to figure out your variable expenses is to estimate what you plan to spend every month, and then track what you ACTUALLY spend. Then you can adjust your budget moving forward if you need to.
Review those subscriptions.
Subscriptions are sneaky - they are usually minor monthly fees but they can add up! You may forget about what you’re getting charged - like apps, news, software, programs and streaming channels. Do you have subscriptions you haven’t used, or that you could share with a friend or family member? Try to consolidate on your end to save that extra monthly spending. You may be surprised with how much you are spending on subscriptions that you don’t need.
Track, Track, Track.
Once you have your budget in place, whether using an app or on your own, then you can track what’s actually being spent. For instance, maybe you want your coffee budget to be $50 a month, but you see that you’re actually spending $100. Does that need to be cut, or is that a priority for you? If it’s a priority, that’s fine! Just be sure to adjust your budget and make a note that you need to cut back that extra $50 each month somewhere else. Budgeting is all about prioritizing what is most important for your life and wellbeing.
Evaluate and Adjust.
Don’t be afraid to make major changes or minor changes to your budget. Maybe you’re underspending in one category of your budget and you want to adjust that money to savings. Maybe you are overspending for a couple of months and then underspending a couple of months - take an average and work to come out even at the end of the year.
Remember that your budget is flexible. The idea is to know what you are spending and what you are bringing in, so that you can make better decisions as you move about your life. This doesn't mean that you meticulously track every penny that gets spent, especially if that will stress you out or overwhelm you. Just having a general idea of what you have to spend can help you mentally prioritize what you want to spend and save on. And you’ll know if an opportunity, item, or experience is something you can afford or not.
Our advice? Try these basic steps to start budgeting and becoming aware of your finances above, and consult a financial expert. Whether it’s an accountant or a financial advisor, these experts can help you stick to a budget that works for your life, and better guide you on what to do with any extra cash, so you’re ready (financially) for what’s next.
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