We should all be making more time in our lives to look after our financial health. Estimates suggest that only 30% of us have a long-term plan for our money. There are plenty of reasons for this; many of us simply don’t make enough to save on a regular basis, and still others are dealing with unexpected events or circumstances beyond our control, so just looking after our moment-to-moment finances takes all of our time.
With a robust, well-crafted budget, you could seriously improve your financial health, so it’s definitely worth taking the time to make one. Where do you start with an endeavor like this, though? How do you approach crafting a budget that takes into account your personal circumstances and spending habits? We’re here to help you. Here’s how you can create the perfect budget.
Divide your money into categories
This is one of the most effective things you can do when you’re building a budget. Once you’ve identified everything you’re earning and spending, you can start categorizing. Divide everything into distinct categories based on type. For example, if you’re earning a regular salary, you would place that into a different category than, say, tax rebates or one-time income events.
The same goes for spending. Divide everything you’re spending into columns; entertainment, food, bills, et cetera. By doing this, you’ll gain greater insight into where you’re spending the most money and what you could potentially cut back on if you need to save. There are plenty of financial apps out there that can help you do this if you feel like it would be too arduous a task.
Combing through your finances exhaustively might sound like too daunting a task for you to take on alone. If it does, why not ask friends or family to help? This goes double if you’ve got a shared account; budgeting should be something you do cooperatively with your partner, so don’t start building a budget without them. If you’re on your own, then ask around for anyone who would be willing to give you some assistance.
This doesn’t just go for the analysis part of the budget, either. You should try and recruit some help for when you’re figuring out how to change your spending habits. Without an independent adjudicator to watch you, you could very well just fall back into bad practices without even knowing you’re doing it. Having a support network around you can minimize risk and help you to get back on track.
Think about where you can make cuts
Okay, so you’ve got your detailed analysis of your spending and income. Now it’s time to start thinking about where you could potentially make cuts. You’ll need to be fairly harsh with yourself if you’re experiencing financial difficulties; unless you’re down to your last penny, there are almost always areas in which you can cut back your spending without it having too much of an impact on your day-to-day life.
It’s worth conducting an “audit” of your life in the same way you did for your finances. Could you walk or cycle to work instead of driving? Buying a bike can be a significant initial investment, but the running costs work out significantly cheaper than using a vehicle. You could also consider cutting out that takeaway coffee you grab every morning, or preparing your own lunch instead of buying meal deals from supermarkets.
Take a good, long look at your bank account
Many of us simply open up our banking apps, glance at our balance, then put our phones away and go about our daily lives. This is a mistake; we should be analyzing our finances and trying to understand how to optimize our spending. When you have some spare time, it’s a good idea to sit down and think hard about all of your income and expenditure. What are you earning, and what’s going out of your account on a regular basis?
Let’s say you’ve taken out some online personal loans. Have you got a plan for repaying them regularly? Do you know how much is leaving your account each month for that purpose? You should have thorough, in-depth knowledge of anything you’re spending – and anything you’re earning. Comb your account meticulously and don’t miss anything out, because it could come back to haunt you later.
Reassess your budget each month
It’s common for people’s financial circumstances to change significantly on a monthly basis. You could find yourself with more income one month, for example, or you could (unfortunately) lose your job and need to rebuild your entire budget. Whatever happens, make sure that you come back to the budget you’ve created each month and assess whether it’s still effective.
You should do this even if your circumstances don’t change, because you might have been slowly drifting from your new spending plan without realizing it. This is also where an extra pair of eyes can come in handy. Someone else could tell you whether you’re sticking to your budget successfully and could even suggest ways in which you could improve it that you didn’t see last month.
Make a spreadsheet
Using a spreadsheet can be an incredibly effective way to keep track of your budget. Spreadsheet software often comes with built-in tools to help you make difficult calculations or autofill cells, which can be useful when you’re inputting tedious and repetitive data. With a spreadsheet, you can see an overview of your finances, delve deep into certain areas, and change things quickly without fuss.
Many spreadsheet software packages also come with templates you can use if you don’t want to create a budget from scratch. Even if your software doesn’t come with a template, you can usually download one online for free, so take a look around before you begin. The process of starting to budget might feel overwhelming, but you’ll likely find it to be quite simple once you begin!