Personal Finance Budgeting
A budget is a plan that helps you save money and get the most out of your hard-earned earnings. But it’s not just about saving money—it can also help you pay off debt and invest more wisely. A budget is a process that will allow you to track your spending, save money, and make smart financial decisions. In this article we’ll discuss what makes up a budget, how to create one for yourself, different types of budget models and how they work for different people
Why do you need a budget?
The first reason you should have a budget is that it helps you plan for the future. You can use your budget to decide what you will spend your money on, whether that’s groceries or clothes or entertainment.
Secondly, having a monthly budget will help keep track of how much money you have available each month so that if something unexpected happens (like an emergency expense), it won’t be too hard to fix later on down the road when things are back under control again.
Thirdly—and probably most importantly—a monthly budget helps prevent overspending by making sure that all expenses are accounted for before they happen! If there’s no written record of what was spent last month and why those specific items were chosen then there’s no way to know if next month would’ve been better spent doing something else entirely (or not at all).
What to include in your budget.
The first thing you need to do is create a budget. This can be done in any number of ways, but the most common way is with a spreadsheet or online program that allows you to enter all your incomes, expenses and savings. You can also use this tool if you have an app on your phone. I prefer to use an App that connects automatically to my bank account and then categorises each item.
Once you have created your budget, take note of what each category means because it will help determine how much money goes into each account:
- Income – includes wages/salaries paid by employers; self-employment income such as freelance writing jobs; other types of income like rental payments or dividend checks from stocks held in retirement accounts; interest earned on investments held outside retirement accounts; etc.
- Expenses – includes everything else besides income: groceries purchased at grocery stores like Tesco or Sainsbury’s; entertainment costs associated with watching Netflix shows on Roku devices; petrol used for commuting back & forth between home base location & workplace location every day during working hours.
- Savings – represents those savings accounts established by individuals who want extra liquidity available for emergencies should they arise during normal business hours (or even holidays). These funds are typically kept separate from other types of assets under control by their owners since they’re considered “risky” investments due largely due their lack availability during times when liquid reserves may otherwise be needed most heavily.
How to make a budget work for you.
Making a budget is a great way to get your finances in order, and it can be done on your own. But before you start making plans for how much money you want to spend each month, it’s helpful to know what steps are involved in budgeting.
Here are some things that will help make sure your budget works for you:
- Make a list of all your income and expenses as soon as possible after each paycheck. List out fixed expenses first (i.e., rent), then variable expenses (i.e., food) and finally savings accounts/investments (if applicable).
- Review this list regularly so that there are no surprises at tax time or when bills arrive unexpectedly later on down the line! If anything changes before next payday then update accordingly immediately with any adjustments needed at once so they don’t build up over time until becoming unmanageable later down path which could result in missed deadlines due lack availability funds needed for living comfortably.
A useful method to help you budget is the 50/30/20 rule. This technique suggests you allocate 50% of your income to your needs. 30% to your wants and 20% on your savings or debts.
Example of 50/30/20 rule
If your monthly income was £3000 then you would allocate:
- 50%/£1500 to your needs
- 30%/£900 to your wants
- 20%/£600 to savings
Needs are things you cannot live without like Rent, Mortgage payments, Childcare, Utility bills.
Wants are things you choose to spend money on that you enjoy e.g. Going out for dinner or drinks, cinema, shopping, leisure travel.
Savings or debt payment: it is important to have an emergency fund to cater for unexpected scenarios as well as longer term savings plans for any goals you have e.g house deposit or retirement. I strongly recommend automating these payments so that the day you get paid you then automate a payment out of your account to a savings account.
Different types of budgeting models.
There are a few different budgeting models, and each has its own advantages.
Cash flow budgeting is the most common method used in personal finance. It involves tracking your income and expenditures each month, then categorizing them into categories such as “non-discretionary,” “discretionary,” and “total.” This allows you to see where your money goes each month and make adjustments accordingly so that you can stay within budget without sacrificing too much on any one area of spending (or vice versa).
The other major types include expense-based budgeting, needs-based budgeting and spending plan/income based methods. Each type has its own pros/cons depending on what kind of person or family member you are trying to help manage their finances through this process; however if I had to recommend only one option then it would be what I personally use: monthly cash flow spending plans which allow me with my wife who does not like numbers at all!
Paying close attention to your spending and saving can benefit your finances by allowing you to spend more on what is important in your life and being prepared for emergencies
Budgeting is a way to plan your spending and save money.
It can help you stay out of debt, because you know how much money is coming in each month.
It also helps you spend money wisely by setting goals for yourself and sticking to them!
There are many different ways to keep track of your finances, but the most important thing is to have an honest look at where you stand and what needs changing. This can be difficult at first because it makes us think about uncomfortable things like spending too much money on things that don’t matter as much in life. But once you get used to it, it will feel natural because there are so many benefits from tracking your money—you get more control over your finances, save for unexpected expenses or emergencies, and even make better financial decisions by knowing exactly how much cash comes in each month.