Budgeting is important, no matter your amount of income. Read on what a budget it, why creating a budget is so important and how you can create your own budget.
What is a Budget?
A budget is a spending plan that allows you to tell your money where to go. It allows you to keep track of your income and outgoing, so you can live and enjoy your life within your limits.
Having a proper plan in place to control your spending will allow you to improve and stay in control of your financial situation.
Why should I have a Budget?
A budget allows you to keep on top of your expenditure, which allows you to understand your personal finances in a greater detail. It will also allow you to make better financial decisions as a budget will allow you to know how much money is coming in, being used and what amount going to each category.
Having a budget is an effective way of knowing where your money is going each month and over the course of the year.
Let’s go through some of the benefits of budgeting:
- Allows you to be in control of your money – once you have mastered being in control of your money, it is a great achievement!
- Allows you to achieve your financial goals. A successful budget will allow you to put money aside into your savings / investments or financial goals
- Combined with having an emergency fund, a budget provides a sense of security and allows you to prepare for any emergencies that life may throw at you
- You may be able to put more money aside for future you, such as increasing pension contribution or investments
- Keeps you in control of your debt. For more information on how you can manage debt, click here.
- Prevents you from overspending
- Improves your wellbeing – both financial and metal wellbeing
How can I start creating a budget?
Taking your time to manage your money now will really pay off. Creating a budget does not take a lot of time to make, and once you have eventually created a budget, it should only take a few minutes to look over going forward.
So how exactly do you create a budget?
Firstly, you will need to work out how much you spend on a monthly basis – such as bills, rent, mortgage payments, grocery shopping, fuel, fun (such as dining out, travel, outings).
Then based on your income, you will need to split this between your monthly costs. Most people create categories, such as living costs, transport, fun, investments etc. – these categories should cover all your expenditure.
Your first month, and first few months of budgeting may not be perfect. As long as you learn where you have gone wrong and adjust accordingly for the following month, you are doing it well. If you are spending more in a certain category or overall, you will need to work out where you need to cut back.