Creating a budget and sticking to it is an important aspect when it comes to organizing yourself towards long-term financial success. One of the major reasons why millennials fail to save funds and run out of money is due to the mismanagement of their finances. The failure to realize how the day-to-day regular expenses will change over time will eventually pile up more debts in the future.
Additionally, there can be various factors that might be affecting your ability to pay your monthly bills and get rid of debts. Here is where budgeting comes into play. Budgeting will not only limit your funds for unnecessary expenditures but also enable you to consider other options such as boosting your retirement savings or emergency funds. The article discusses all important aspects of budgeting including how to come up a budget that you can stick to and how to avoid some common budgeting mistakes.
Why Do You Need A Budget?
It is advised to define your financial goals before you start budgeting as the purpose can sometimes affect personal choices that you make during the period. People who budget are less likely to struggle with finances compared to the ones who do not. While budgeting can seem complicated, it has always been a great decision.
Getting out of the paycheck-to-paycheck lifestyle.
Reducing your credit card bills.
Bringing down expenditure on unnecessary things.
Finding a way to get out of debts.
Trying to save more money.
Saving up for long-term financial goals.
Get A Clear Picture Of Your Current Spending Habits:
Figuring out where exactly your money is going is an essential part of budgeting. Track your expenditure for a month before creating a budget to get an idea about your present spending habits. Only then will you be able to come up with a realistic budget. There are a lot of ways you can track your expenses.
You can either write them down on a notebook or enter them into a spreadsheet. You can also keep the receipts of your expenses to record it later. However, it can be time-consuming for some people as he/she will have to enter the expenditures immediately to avoid forgetting about it later. To make life easier, many budgeting apps have also been launched, one of which is the BankBazaar App. It lets you:
Do a bank balance check of your multiple bank accounts.
View a real- time snapshot of your monthly spends.
Track your recent transactions.
Keep tabs on your outstanding credit card usage and track credit card spends too.
Get timely reminders about Credit Card bill payments.
Figure Out Your Total Monthly Income:
The main purpose of budgeting is to make the best use of your monthly income. Hence, it is advised to consider all sources of income during the process. It can include your monthly salary, money from a part-time job or second job, returns from investments, etc.
In case you do not have a fixed salary, you will have to fix a monthly salary that you’ll be paying yourself. Based on this salary, one can start creating a budget. You can also save the extra money earned during the month in order to cushion the impact of a bad month where the income is lower than the usual. This will also bring down the risk of overspending during such months. However, people with varying incomes will have to update their budget every month based on the earnings made the previous month.
Recognize Your Financial Goals:
Making a budget and sticking to it not only gives a sense of control over your funds but also keeps you concentrated on long-term financial goals. It can either be saving up for retirement or purchasing a new home or a new vehicle. Financial goal setting not only improves your motivation but also gives you a sense of achievement each time you achieve them. Hence, goal setting is an important aspect when it comes to creating a budget. You can also include deadlines to keep you motivated to achieve your goals.
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Choose The Type Of Budget You Want To Create:
Once the preliminary steps are taken care of, the next step is to decide on the type of budget you want to make. There are various types of budgets to choose from. Some of the most common types chosen are the Zero-Based budget and the 50-30-20 budget. In order to make a zero-based budget, the first step is to write down your monthly income and monthly expenses. Then, subtract the income from your expenses and equate it to zero.
Each rupee from your income is assigned a job in this case, meaning there is no money left over for unnecessary expenses in your budget. Even if you find yourself with some extra funds, you aren’t done. You must allocate the money for some purpose. It can either be utilised to add to your savings or for other financial goals. However, the zero-based budgeting is not an easy one to keep up with as it comes with conditions where you will have to restrict yourself from spending money as much as possible.
On the other hand, a 50-30-20 budget is a more flexible type where 50% of the monthly income is assigned for monthly expenses such as groceries, fuel, rent and minimum payments on credit card bills. 30% of the funds shall be allocated for personal expenses and the remaining 20% is earmarked for savings to meet your financial goals.
Common Budgeting Mistakes Millennials Should Avoid:
The primary step for creating a budget to know where you’re spending your hard-earned money. So, estimating your expenses may not work as you might end up spending more than expected during the month. Hence, it is advised track your expenses for a couple of months before you create a budget.
Not setting up an emergency fund:
Budgeting is not just a tool to manage your expenses, it also helps you increase your saving funds. Hence, it is advised to set aside a considerable amount from your monthly budget in cases of emergencies such as unemployment or health-related issues.
Leaving the budget unchanged:
One of the common mistakes millennials make is forgetting how their monthly income and expenses change over period. So the budget you might have created last year might not be relevant next year. Hence, it is advised to update your budget in case you receive a salary hike or bonus in the coming years
Now that you’ve gone through the basic steps of budgeting, it’s time to start making a budget and make your hard-earned money work for you. You can also look into investment options with your savings fund. Happy savings!