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When pandemic hits the world, a lot of people realized the importance of having a savings or an emergency fund. This is because many people lost their jobs due to economic disruption brought by lockdowns.
If you are one of those people who have learned a lesson the hard way, then maybe it's time to start budgeting and saving money. Budgeting and saving money is not easy for obvious reasons that buying nonessentials is easier. But sure thing is, it is possible and doable.
Budgeting is the process of creating a plan to spend your money and that spending plan is called a budget. Creating a budget can help you feel more in control of your finances and make you save money easier. A well-laid spending plain can help you reorganize your finances, spend wisely and prevent having debts.
Below are the steps to help you to start budgeting and saving money.
Put together all your record of income and expenses
First of all, you need to gather all your financial statements, which includes electronic or paper bills, receipts, pay slip, bank statements and all the record of income and expenses for at least a month. This is to create a monthly average for your budget-making.
Calculate your monthly income
To create an effective budget, you must know your net income. Net income is the your take-home pay or total wages less deductions like taxes, loans and employer-provided programs like health insurance and social security plan. If you're a freelancer, self-employed or business owner, make sure to have a tracking list of your contracts, pay and earnings to be help you manage an irregular income.
Determining your net income is important. Because focusing on your total or gross salary and/or earnings can lead to overspending since you’ll think you have more available money than you do.
Track your expenses
Once you calculate your net income, the next step is to determine your expenses. Track and categorize your expenses to know what you are spending the most and help you save easier.
List down all the expenses you expect to have during a month. Start by listing fixed expenses, which are the mandatory expenses that remain the same from month to month, such as:Have a record of your daily spending. You can write it down on a handy notebook, mobile financial app or on spreadsheets.
- House amortization or rent
- Insurance
- Retirement fund
- Education plan
- Car amortization
Then list down the variable expenses, where you might find opportunities to cut back and save. This includes:
- Groceries
- Utilities
- Entertainment
- Personal care
- Dining out
- Child care
- Travel
- Transportation costs (fare, gas, etc.)
- Savings
Set a realistic financial goals
Make a list of your short- and long-term financial goals to give you a direction and clarity when making decisions about your finances. Short-term goals should take around one or three years, which include setting a budget, reducing debt, and starting an emergency fund. While long-term financial goals may take a decade like saving for your children's education or your retirement fund. These goals will show you if you’re moving in the right direction.
Review your income and expenses
Total your monthly income, and your expenses. If your income is higher than your expenses, you are off to a good start and have extra money to put funds towards other areas of your budget. However, if your expenses are more than your income, that means you are overspending. You need to make some changes and find areas in your variable expenses where you can cut down.
But if your expenses are far above your income, reducing your variable expenses may not be enough. You may need to increase your income and cut down your fixed expenses to balance your budget. Remember your aim is to have your income and expense column equal, which means all of your income is accounted for and budgeted on a specific expense or financial goal.
Implement your budget plan
After reviewing your income and expenses, it's time to take the necessary steps to put your budget plan on works.
Monitor and continue to track your expenses everyday to avoid overspending and to help you identify unnecessary expenses. Make it a habit to record your expenses daily rather than delaying it until next week or next month.
Include saving in your budget
Include a savings category in your budget. Aim to save an amount that is comfortable to you then increase your savings up to 15 to 20 percent of your income.
Cut down debts and loans
Cut down unnecessary credit card expenses and learn to use your credit card wisely. If you need to make a loan or cash advance, make sure you really need it. Choose an online cash advance with lower interest and easy term payment. Just be careful not to be tricked with online cash advance scam.
Reduce expenses
Cut down your expenses on unnecessary things. Like instead of dining out every week, reduce its frequency to every month, every other month or to just when there's an occasion. Always think that even small savings can add up to a lot of money and you might be surprised at how much extra money you accumulate by making one minor adjustment at a time.
It is important that you know your priorities but not necessarily depriving your self. Review your budget and check your progress regularly. This will help you not only stick to your budget plan, but also identify and fix problems quickly.
Having knowledge on how to budget and save money may even inspire you to find more ways to save and hit your financial goals faster.
