Managing your finances has a lot to do with leading a stress-free lifestyle. Managing your finances entails numerous aspects such as debt management, budgeting, financial education, and progressive financial growth, etc. However, the foundation of your financial management is your budget. The first step is to create a budget that works for you. Creating a budget has its own methods and it is therefore important that you understand some useful budgeting basics.
To avoid debt – or to overcome it – understanding budgeting basics is crucial.
A Budget is a Snapshot!
A budget gives you a clear picture of your financial situation. It is basically a framework within which you maneuver your money. Your budget should entail all your monetary assets and liabilities. This means it should take into account the cash you deal with as well as the credit. Your credit cards and other liabilities such as your loans, mortgages are part and parcel of your budget. Therefore in understanding the budgeting basics this is the first thing you should be aware of. Leaving out any information will give you an inaccurate financial picture leading to various types of consumer credit.
This is why a budget is basically a framework on which you navigate your ship. It is the backbone of your managing system. If it is not comprehensive and strong, chances are you may end up in undue financial stress. A budget helps you prioritize the expenses and savings that will help you achieve your financial goals. A budget lets you monitor your income and spending overtime to make sure you’re sticking to your goals. And your budget can help ensure that you will always have enough money for the things that are important to you. Basically, a budget is what navigates your finances. How you approach the many budgeting basics will determine the success of this journey.
Budgeting Basics – The What, Why & How
Budget Plan:
If you start building a house without a plan not knowing where each room would go and where the doors and windows would be, the entire structure is at risk. Budgeting is the same. If you do not plan it with a proper plan, your entire financial structure is at risk of collapsing. That’s why ACCC’s debt counselors recommend having a budget plan. It’s a chart that shows you the flow of money in your everyday life. A budget can help you determine where you are overspending as well as help you adjust bad spending habits. Therefore, a budget plan shows where your money comes in from and where they are spent. It shows you the areas of improvement, the places to cut back, and where you can make adjustments to strengthen your finances. These adjustments can show you the ability to save more or make larger payments on your debts.
The importance of having a plan is that it makes it easier for you to add and remove elements to fit your overall financial goals. If you are in the state of your life to make a big financial decision such as buying a house, your budget can show you your possibilities. How much can you really afford? How much would you need to borrow and are you really capable of managing such an expense with your current influx and expenses?
Why Do You Need a Budget Plan?
Finances are eternally volatile. Anything can happen from a pandemic to a personal or family illness or job loss. All of these challenges can lead to a severe financial crisis. Other than the unavoidable circumstances, you might simply be overspending your money. This is where the understanding of budgeting basics helps you the most. If you had a plan in place to track your money these situations can be far less challenging. It is easy to get carried away with spending more money than you earn with the presence of “credit” in abundance. Also, the increasing use of online shopping entices consumers to spend more. The targeted ads and the overall convenience drives bigger spending. On the other hand, there are ample resources offered by banks and financial institutions to help you track your budget plan much more conveniently than many manual approaches. Therefore, a budget is designed to help consumers gain control of their spending, and proper planning can help to improve your financial situation.
How to Create a Budget Plan
Creating a budget is an overnight process. You have to have a certain discipline and a commitment to this process. If you are determined to get your financial life in order, you need to start by keeping track of all your monthly living expenses and other monthly bills. Once you identify more or less all your expenses, you can then go on to categorizing them. There are a variety of tools that are freely available to you online to manage your budget. Budgeting software, apps and tools can be found abundantly. However, you only need a basic spreadsheet to get started. Documenting is the key to a successful budget. Accounting for each and every penny you spend makes your budget more accurate and goals more attainable. Therefore, make sure you account for every penny you earn and every penny you spend.
How Do I Maintain My Budget Plan?
As I mentioned earlier, a budget is a discipline. Impulses and emotions can get the best of you and your money. Therefore, any desire that stimulates you to spend more than you can afford will throw your budget to the curb. If you are serious about attaining your financial goals, adhering to your budget is the most basic thing you can do. Keeping a close eye on every penny you spend and making note of it is crucial. There are free apps on mobile phones to file your receipts. You can use these to make life easier for you. Second, guess your spending choices more often than not. Do you really need to buy that pair of shoes? Can you control spending with your credit cards? Are you better off with a cash-only budget? How well do you handle your credit accounts? Constantly ask these questions to improve and enhance your budget. Look back at the budgeting basics over and over to stay on track.
However, a budget does not mean you restrict yourself from entertainment and your hobbies. A budget is just a means to allocate the appropriate and affordable sum of money to all the activities you desire. A budget will help you prioritize when you have a tighter financial situation. It will be more methodical since you will know exactly where the money will be coming out of.
How Does Budgeting Basics Improve My Lifestyle?
- It is a guide that tells you whether you’re going in the direction you want to be headed in financially. You may have goals and dreams but if you don’t set up guidelines for reaching them and you don’t measure your progress, you may end up going so far in the wrong direction you can never make it back. Can you imagine the government or a major corporation operating without a budget? No, and neither should you.
- A budget lets you control your money instead of your money controlling you.
- It will tell you if you’re living within your means. Before the widespread use of credit cards, you could tell if you were living within your means because you had money left over after paying all your bills. The use of credit cards has made this much less obvious.
- Your plan can help you meet your savings goals. It includes a mechanism for setting aside money for savings and investments.
- Following a realistic budget frees up spare cash so you can use your money on the things that really matter to you instead of frittering it away on things you don’t even remember buying.
- It helps your entire family focus on common goals.
- A well-planned budget helps you prepare for emergencies or large or unanticipated expenses that might otherwise knock you for a loop financially.
- A proper financial plan is a well-oiled mechanism to fuel your domestic partnerships. A good budget is not just a spending plan; it’s a communication tool. Done right, a budget can bring the two of you closer together as you identify and work towards common goals and reduce arguments about money.
- It reveals areas where you’re spending too much money so you can refocus on your most important goals.
- It can keep you out of debt or help you get out of debt.
- A budget actually creates extra money for you to do use on things that matter to you.
- A budget helps you sleep better at night because you don’t lie awake worrying about how you’re going to make ends meet.
Conclusion:
Understanding budgeting basics and its benefits strengthen the backbone of your finances. Creating a financial plan helps you maneuver your stresses positively to achieve your overall life goals. However, it is understandable that you may need some help from a professional such as a credit counselor to navigate you through this process. ACCC can help you with their initial free budget counseling sessions.
If you’re struggling to pay off debt, ACCC may be able to help. Sign up for a free credit counseling session with us today.
