Budgets can be as restrictive or as expansive as you want—you’re in charge! Learn these five simple steps to make your ultimate budget plan.
If you’ve tried to create a budget before and failed to stick to it, you’re not alone. Many people quickly give up on budgeting because they find budgets too restrictive or time-consuming to maintain. But they don’t have to be! There are various budgeting approaches you can adopt, depending on your style.
We’ll go over why it’s critical to give budgeting another try and how you can go about creating good habits and a budget that works for you.
Why Making a Budget Is Important
Budgets are a wise financial move because they bring so many benefits, including:
- Preventing financial hardship: Budgets bring awareness to your cash flow and put you in control of your money—this aids in curbing overspending.
- Saving for your dreams and goals: Unless we’re intentional with our dollars, spending them on things that aren’t even that important to us is easy. It’s equally easy to spend hard-earned money on items that don’t bring us closer to the dreams and goals that bring true fulfillment.
- Letting you have fun without going into debt: You’re much less likely to feel guilt about purchases if you’ve saved up for them in advance or know that you have room in your budget to make them. That’s true regardless if it’s a night out with friends or a new gadget you’ve been eyeing.
- Funding your priorities: Budgets help you save for the important things in life, whatever those are for you. Down payments on a home, a child’s education, or a new pickup truck you’ve longed to own are all possibilities within your reach.
How to Make a Budget Plan
We all know that budgeting involves setting money aside for specific reasons, but how do you create a budget that brings you closer to financial stability and freedom? Follow these five steps.
Step 1: Take Inventory of Your Finances
Before you set out to create a budget, it’s essential to get an overall sense of your finances. You’re also trying to visualize your cash flow and how your income and expenses compare. A useful resource to get you started is Dave Ramseys Monthly Cashflow Plan.
Step 2: Assess Your Income and Expenses
If you already see that your expenses outweigh your take-home income after taking a financial inventory, consider what you can do to bring them into balance. This doesn’t mean you have to go cutting your morning lattes if they bring you joy.
Start by eliminating or reducing expenses that won’t cause much heartache, such as an unused Amazon Audible membership or shopping at a more budget-friendly grocery store like ALDI. Your expenses are unique and personal. Make changes that feel right for you.
Also, see which service providers you can switch, such as internet or cell phone companies or home and car insurances. In fact, you should likely reassess your rates regularly. Companies raise your rates in insurance and other industries simply because they think you won’t leave if they do. It’s called price optimization, and you could end up paying higher prices for your loyalty.
Making more money is always an option too. How? Side gigs or freelancing, asking for a raise (especially if one’s overdue), selling some belongings, or picking up a weekend job that’s fun and still pays are popular options.
Step 3: Make a Monthly Budget
Did you know there are different types of budgets? Budgeting is much easier when the kind of budget matches your style. Here are the most common types and who they’re best for:
Best for: Those who tend to spend more than they want to.
This budget system uses envelopes for each type of expense. Every envelope contains your monthly cash allotment. When the money in that envelope runs out, it either means no more spending in that category or sacrificing money from another category, such as “Dining Out,” to cover that expense.
Best for: Those who want a simple budgeting framework.
This budgeting method is as laissez-faire as it gets. Rather than allotting specific amounts for every budget item, you put fifty percent of your income toward essential expenses, thirty percent toward desired expenses, and twenty percent toward debt repayment and savings. 50 30 20 rule is a straightforward framework that covers all your bases.
Best for: Those with tight finances.
Zero-based budgets assign every dollar you earn to the categories in your budget. This assures you don’t spend more than you earn and makes it easy to adjust your spending when you need to. It’s the best method when tight finances mean you need to keep a careful eye on your spending.
Pay Yourself First
Best for: Those with specific savings goals.
Sometimes you don’t want to create a detailed budget, preferring instead to save for specific goals. With the pay yourself first method, you schedule automatic deductions on payday to a dedicated savings account. Then you adjust your expenses to match the income left, rather than waiting to save what’s leftover at the end of the month.
Pro Tip: You can further increase your budget compatibility by using your preferred medium to track it. All of the budgeting methods above are adaptable to high or low-tech options. For example, if you want to use the “Pay Yourself First” method, you can use Monorail to save for multiple items and goals at once with a single deposit. But if you’ve always been a pen-and-paper type of person, tracking your budget in a bullet journal or notebook is also an option.
Step 4: Create Some Wiggle Room
It’s vital to add a cushion to your budget so that you don’t get derailed with life’s inevitable surprises. The standard recommendation is to have three to six months of essential living expenses squirreled away for emergencies. These are expenses you can’t cut out of your budget during times of financial hardship, such as your:
- Health, car, and other insurances
Don’t get discouraged if you can’t put money in an emergency fund every paycheck. Any money you save is better than none. Just keep doing what you can to build up your savings.
Step 5: Review and Reassess Your Budget
No budget system is complete without at least a monthly review that reassesses and tweaks it. You’ll be able to trust your budget and feel confident that it’s serving you. When you’re reviewing your budget, look for categories of frequent overspending, unplanned purchases you can save for in the future, and areas that need more or fewer cash allocations.
Budgets Are Designed to Help You
The purpose of budgeting is to help you spend or save your money thoughtfully on the things that matter to you. Don’t use them against yourself by making them too restrictive or unrealistic. And remember, any budgeting limits or rules are self-imposed, so you can revise them as needed.
Your budget should grow and change with you through the ebbs and flows of your financial circumstances to keep up with your desires.
With the Monorail app, you can clearly define your goals, set savings targets, and adjust as needed. Check out the Monorail app to create your Wishlist and savings Tracks.
See how you can put your budget to use.
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