Let’s face it: Budgeting is no child’s play. Making a plan and sticking to it isn’t as easy as it sounds. You’ll have to make a ton of estimates and track them religiously.
There’s a chance that you didn’t account for contingencies and had to dip into funds reserved for another head. A poorly thought-out plan, or sloppy execution, can very well leave you broke by the end of the month.
If you’re wondering how to budget, and especially how to budget smartly, we have a few ideas you might want to check out. Having trouble executing a plan properly? You can choose from an array of technologically integrated solutions for personal finance.
Stuck finding the right budgeting strategy for yourself? You can give some tried-and-tested budgeting templates a chance, and decide what works for you.
The Classic Worksheet
The first step to a good budget is self-awareness. You have to get an accurate idea of what you earn, and from where against a prudent estimate of what you spend, and where you’re likely to slip.
A worksheet is an itemized list of all the sources of income and areas of expenditures you have. It can be stylized to suit your needs of a weekly, monthly or annual budget. Two of the basic worksheets are Income and Expenditure Worksheets.
In the former, you list all your income sources (including rent, salary, dividend, interest) and total the amount at the end. According to their necessity, the latter would rank payments with utilities and loan repayments being listed above other heads. If you’re having trouble calculating loan instalments, you can work this out using an online calculator.
Creating a worksheet is no mean feat. You can opt for the pen and paper mode, or switch to digital spreadsheets using either Microsoft Excel or Google Sheets.
Use Mobile Applications
If you’re holding multiple cards, you might find it frustrating to track all your expenses efficiently. There’s a high chance that you’re going to miss some expenses, and that could impact your plan.
Technology never ceases to amaze. There are budgeting apps galore now, where you can simply link your card details, and let it do the rest.
Set limits, and you’ll get alerts as to when you’ve gone overboard. There are specialized apps for couples who share bank accounts, or for people who are looking forward to investing as a part of their budget.
Save Automatically
Saving is an integral part of your budget plan. It cannot be stressed enough what a good savings plan can do for you in times of need.
But despite knowing the fact that someday savings can save your life, many people forgo the act. Maybe it’s the sudden rush of the paycheck coming in, or something else, but many go overboard and forget to save.
Thanks to technology again, you can automate your savings. There are applications like Acorns and Qapital that have this unique feature of round-up savings. All the change left from your transactions automatically moves into the piggy bank.
Budgeting With Loans
There are some cases in which you can underestimate a contingency and exhaust all your funds but still need more. In those dire situations, one can opt for short-term, easily repayable loans.
Payday loans are a great option if you’re looking for a quick fix. These are high-cost short-term loans, which have to be repaid by the next payday. 7 to 60 days is the usual repayment period, which can be altered as per requirements. You can find payday loans online easily.
You can also opt for a loan against your credit card limit. This too is a high-cost borrowing option, and strictly contingent on your repayment history. Such loans can be converted into EMIs as well, and the amount is blocked from the limit.
50/30/20 Rule
Erstwhile Harvard professor, Elizabeth Warren proposed the 50/30/20 rule of budgeting. It aims to divide your after-tax income into three components: 50% for needs, 30% for wants, and the last 20% for financial goals.
Needs include all utilities and recurring expenses like rent. Wants generally constitute specific expenses such as dining out, particular shopping needs and other things that might change every month. Financial goals target two areas – savings and debt. A part of the 20% is reserved for servicing your debt if you have any.
Zero-Based Budgeting
Zero-based budgeting is another strategy that has a unique goal. It prods you to spend your monthly paycheck such that at the end of the month, you have exhausted all of it.
Careful now, it doesn’t mean you go crazy with a shopping cart. The philosophy behind the strategy is exactly the opposite. By forcing you to justify every penny you earn, zero-based budgeting inculcates the habit of valuing your money.
Debt-Snowball Method
If you find yourself caught in the quicksand of debt-traps much too often, this is a highly recommended method for you. The debt-snowball method is designed to rid you of any debt payments that you have with a payment plan.
There are monthly payments, from lowest to highest debt regardless of the interest rate. Other than just helping you get back on your feet, this programme is designed to instil a habit of healthy debt repayment.
Have Small, Reachable Goals
Aiming to be a millionaire is never the first budgeting target that you’ll want to set. As you may have already known, budgets are contingent on a host of factors, and the list is mostly dominated by those you cannot control.
Even if your ultimate goal is reaching a particular amount in savings, divide that journey into shorter realistic milestones. That way, even if you falter once or twice, you won’t be disheartened.
Take Advantage of Benefits
Nowadays, almost every online transaction or card payment carries a benefit with itself. These could be vouchers, redeemable reward points or a straight-forward cash-back. A smart spender will always be aware of the awards and benefits which they can exploit, and save a little bit extra with respect to their budget.
Reward Yourself Once In A While
All work no play sucks all the colour out of life. Like exercise and dieting, budgeting is also most effective when done in moderation.
Depriving yourself of purchase would only add to your resentment and frustrate you even if you have the means. To prevent budgeting from becoming a toxic, miserly habit, be open to a little leeway.
In Conclusion
Budgeting can be daunting, but there’s no need to worry. It’s an art to remain within a stipulated budget, and art can be mastered with practice and discipline. Modern budgeting is integrated with smart technology which makes it all the more rewarding and efficient.
