How to Properly Budget Your Income?
There are a lot of people that have found that it can sometimes be extremely difficult to make do with what they earn in a month. This is sometimes a result of unexpected expenses such as medical bills or home reparation costs. Regardless of the situation, there are times when an individual’s salary is simply not enough to cover all the monthly expenses. The solution that most people use is to borrow money from banks or other lenders such as pawnshops and online lending services. While these are good options, there is a better and easier way to ensure that you will never be caught off-guard.
Properly budgeting your expenses is one of the easiest and most efficient ways to make the most out of your income and ensure that you will always have enough to pay your expenses. This having been said, it does require a bit of information and a lot of planning. Here is what you need to know:
Research is Important
To make a functional budget, you must first look at how you are currently spending your money. This can be done by either keeping a list of all your expenses or by saving the receipts for all the purchases that you make. Do this for at least 3-4 months, to get a clear picture of how you are currently spending your income. After gathering the information that you need, compile lists of essential expenses and one for creature comforts. The latter should include anything from Netflix subscriptions to fast food orders and movie tickets. At this point, it is important to keep in mind that you should not include any expenses that are out of the ordinary, such as medical bills or home renovation expenses. These are temporary expenses, not recurring ones.
Establish Your Priorities
The next step is to establish your spending priorities. Start by looking at your list of essential expenses. Go through each item and eliminate the ones that are not vital for a basic lifestyle. This list should include rent, utility bills, food, and other expenses that are directly tied to the household or your sustenance. Take the items that remain and add them to your monthly budget. This is the amount of money that you will have to spend every month, no matter what happens. Once you finish with the essentials, look at the creature comforts one. Take into consideration how much you are currently spending on these optional expenses and select the ones that you can do without. Proper budgeting is a matter of discipline, which means that it may be necessary to give up certain items to ensure that enough money remains to set some aside after paying the essential expenses.
Set Spending Limits
You will now have to set spending limits for yourself. These should be based on your essential and optional expenses. In most cases, the choice will be between cheaper or more expensive products. For example, when it comes to buying cleaning solutions it is advisable to look for promotions and get products that simply get the job done. Generally speaking, if you are tight on cash, it would be best to avoid premium products unless they are absolutely needed. As you slowly save money, you will be able to buy more expensive items, however, this requires patience and discipline.
Open a Savings Account
Once the budget is set, deposit any money that remains in a savings account. This will serve a dual purpose. First of all, it will make it difficult to spend it on unimportant things. Secondly, a savings account makes money work for you. While there might be only a few hundred pounds in the account at first, as the bank pays compound interest, the amount of money will grow. Furthermore, if there is ever an emergency that requires a larger amount of money, you will have the savings account to fall back on.