So you’ve finally decided it’s time to do some financial planning, but you still don’t know the basics of budgeting.
Congratulations! You are one step closer to financial freedom. However, you still need to learn some important rules!
Budgeting is really very simple, there is only one difficult thing about budgets: sticking to them.
You’re probably no stranger to budgeting, but like everyone else, you’ve seen your fair share of failed budgets.
Here are some budgeting basics to help you set a budget that not only gets the job done, but you can live with it too.
Budgeting Basics: 8 Essential Rules No Successful Budgeting Must Happen
1. Pay Yourself
First No matter what your financial goal is, paying yourself first is an important key to budgeting success.
A good rule of thumb is to put at least 10% of your net monthly income into savings as your monthly payment.
This is the most important foundation of the budget basics.
2. Keep an Expense Log / Journal
However, before you even start your budget, it is a good idea to keep a journal of all your daily expenses for a month to three months.
This eliminates the guesswork of calculating your expenses for your budget.
3 Debt should be the top priority
If you have debt, it should be the top priority on your budget.
Pay off that debt as soon as possible, debt is like a financial anchor that is weighing you down.
Therefore, set aside 15% of your total net monthly income to pay off your debts.
4 Cut costs
It’s important to try to cut costs whenever you can. Examine your budget, try to find areas where you can cut costs.
One area where people tend to make the most cutbacks is entertainment, but this is one of the worst things you can do because it will make the budget that much harder to meet. Always leave room for fun and whatever you like in your budget.
5. Set a Realistic Budget Goal
It’s never a bad idea to set a goal for your budget, whether it’s eliminating debt, saving money for some big purchase, or building your retirement nest egg.
To avoid disappointment, you should set goals somewhat conservatively – life has a way of throwing a curveball at us from time to time, which gets us out of the way.
What I’m trying to say is, don’t get carried away with failure by setting goals or expectations too high.
6. Live on Money
For many people these days, the idea of living on money alone seems archaic and terribly outdated – but believe me, it works!
They say it’s not practical these days with instant debit etc. I don’t mean in the literal sense, I just mean that your variable expenses like:
They must be paid in cash – only spending what is allocated for each expense in your budget.
7. Necessity or Compulsion
Among the basic principles of budgeting, I believe this is the most difficult, as it takes a very deep analysis and maturity to understand if the purchase is important, or is it just a compulsion to purchase.
So ask yourself these 2 important questions: Do
- I need or want?
Give yourself at least 24 hours to think, you will probably have come to your senses and realized that you are acting strictly on impulse, as we are all guilty.
- Do I have money to pay now?
If the answer is no, you must turn around and flee in the opposite direction. This will lead to more debt, which is exactly what got you into this financial mess. If it’s important enough and you put money into savings, you can save until you have enough to buy it in cash.
8. Have an emergency fund
When increasing the budget, it often goes unnoticed, but having an emergency fund is extremely important.
Some experts will tell you that you should have a fund equivalent to about 6 months’ salary. Personally, I think your fund needs to be around 1 to 3 months down payment.
Now that you have better control over budget basics, you’re ready to start building your budget.