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Budgeting 101: How to Make a Budget the Right Way

Updated on November 26, 2019
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April has been working closely with financial analysts and law professionals for 5 years and she gained valuable insights along the way.

Budget planning is an important task to secure a good financial future.
Budget planning is an important task to secure a good financial future.

People would generally make a list of "resolutions" every New Year's Eve. They would swear to all their gods that they will keep it this time. But like how your diary only has an entry up to the second day that you have it-- the will to follow through these resolutions seem always to be DOA. Unfortunately, New Year resolutions are not the only victims of our inability to stay motivated or our strong attachment to our procrastinating habits. Our plans to save money is also always hanging by a delicate thread. The moment that a friend invites you to watch a movie or eat somewhere nice, that delicate thread is gone.

If you want to make sure that your will to stay on track of your budget is hanging by a thread made of metal chains and is guarded by a dragon. You might think about borrowing money, but, you must consider the warning before borrowing money. It's preferable that you simply adjust your expenses.

Read on for a step-by-step guide to creating a budget.

What is a Budget?

First of all, you need to know what budget is. You need to know that being forgotten or abandoned in the dark corner of your brain is not a part of its description. A budget is a spending plan for a specific period. Your budget is based on how much money you are making and how much you spend on your expenses. Budgeting your money will always start with a specific goal. Saying "My goal is to be filthy rich" is not a solid goal by the way. We'll get to that in a few.

Having a budget can get the whole family working together on the same plan.
Having a budget can get the whole family working together on the same plan.

Step-by-Step Guide to Proper Budgeting

Here are the steps to making a budget the right way:

1. Set a realistic goal.

Set a solid goal and be specific with it. It should be something as realistic and detailed as wanting to retire early, maybe at the age of 40, and still live comfortably. Saying that your goal is to be filthy rich is not entirely realistic, especially if you cannot even gather your will power to stay on track with your budget.

2. Know your monthly income.

Sadly, most people do not know their monthly income just as they don't know themselves. And it is even sadder that when they try to look for themselves on the beach or overseas, they lose more of their monthly income. You need to determine how much you are making every month before your black hole of expenses come to suck your wallet dry.

Once you have a clear understanding of how much you earn, you can identify how much you can afford.

3. Know your monthly expenses.

You know what they say, keep your friends close and your enemies closer. It is not enough to know how much money you make; you also need to know how much expenses you have each month. You need to determine whether you are spending your cash practically or are you just wasting your resources.

Your monthly expenses can include rent, a car payment, car insurance, your electric bill or your fixed loans.

4. Analyse if you are living within your means.

Are you living within your means or did your computations show a negative number? If you are living within your means, then-- you are doing great, sweetie. Keep it up! This means that you have enough money for your monthly bills and essentials, and maybe some money for savings. If you got a negative number, then it is time to get your life together and follow a budget.

In other words, stop sending money that you don't have the luxury to waste. Yes, cash loans or credit cards sound tempting, but, it will only lead you to mounting debts. So, be wise and living within your means - work with what you have.

5. Stick to the plan!

You may think that you need an intricate plan to reach your goals, but that is not entirely true. Although details can help you achieve your heart's desires-- it is your will to stay on track of your plan that will get you there.

6. Review your results.

Take note of the results that you will get from your initial spending plan. Were you able to successfully save money? Is your budget easy to follow?

7. Adjust your spending plan.

If your first attempt to save money does not go according to plan, that is okay! You can always adjust your budget according to your needs. It takes a few tries before you can get the right formula. You can't succeed if you give up after the first try.

Keeping your receipts can be helpful in tracking all your expenses ad how you can make adjustments with the amount you can spend next time.
Keeping your receipts can be helpful in tracking all your expenses ad how you can make adjustments with the amount you can spend next time. | Source

The Final Say

Your savings is like a tree-- you need to take care of it and water it to help it grow. However, your budget is not the same. It is a puzzle that you need to arrange, analyse and put together. If a piece does not fit, then you need to make adjustments. Your impractical expenses are excess pieces that you should not force unto your puzzle.


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