How to Make a Budget: Step-By-Step Guide
If your expenses exceed your income, you need to change your personal habits and patch up “holes” in the budget.
We have written 15 steps that will help you understand to increase your income and learn how to control your finances.
1. Start keeping a budget
Start from scratch – start a budget. Find out the size of your income and determine the basic monthly expenses. After counting them, you will see whether the balance is positive or negative. Of course, it is important that your expenses do not exceed the amount you earn. This will allow you not to get into debt.
It is difficult to cover all the small issues related to money. Start with clear expenses: transportation, rent, food and groceries. Gradually analyze the remaining expenses that you make during the day and add them to the budget. Review it periodically. Knowing where you are is the foundation of money management.
2. Reduce bills
The simplest way to change the budget balance in a positive direction is to pay less for various services. After spending a little time, you can find the best conditions for telephony, television, banking, Internet fees. You don’t have to fight for pennies or accept the worst offers. Just check: suddenly there is an opportunity to pay less for the same product or service and switch to a different tariff.
3. Eat less often in cafes
One of the easiest (and pleasant) ways to waste money is to go to a restaurant or cafe. Periodic trips to a good cafe are normal. Holidays, weekend meetings are pleasant and convenient to spend in such an environment. But if you have lunch every day in cafes, it is expensive. Just do the math.
Make yourself a challenge – try to cook and eat at home for a whole week. Take your lunches to work with you. You’ll be pleasantly surprised at how much you will save.
4. Plan your menu
If the idea of cooking every night scares you, the situation can be simplified by planning the menu for a month in advance. This approach allows you to control your finances and save energy for several reasons:
- You spend significantly less time in stores, as you buy for one or several weeks at a time;
- You spend less time on cooking because you can make food preparations for a couple of days in advance;
- You can buy products in large quantities in large hypermarkets, which usually have lower prices.
Menu planning services or apps will help those who have difficulty with their imagination. For example, Easy Menu for Android, iOS and Web.
5. Read about personal finance
If you have a desire to live on a budget but it is not clear where to start, read books about personal finance. They open up new points of view, structure knowledge, and tell you “how to approach” money. Here are five classic versions:
- “The Richest Man in Babylon” — George Samuel Clayson;
- “Rich Dad, Poor Dad” by Robert T. Kiyosaki;
- “Think and Grow Rich” – Napoleon Hill;
- “The Path to Financial Freedom” — – Bodo Schaefer;
- “The Science of Money” — – Brian Tracy.
6. Learn about investments
One of the main steps in creating personal wealth is to start investing. If this scares you, try to study the question in more detail.
Read the literature for beginners, sign up for courses, try a service or app where you can buy several shares in demo mode.
A reasonable investor sees the purchase of securities as the purchase of a share of the business. Therefore, it is important to evaluate the financial results of enterprises over several years. No one wants to buy a company with an inefficient business model. Give up speculating, playing on the rise and fall of the stock price during the day. This method is risky and often leads to a loss of capital. Invest money in the medium or long term.
7. Set real material goals
To effectively control your finances, you need to define a goal. What do you want to achieve, what are you trying to achieve? If you don’t have a specific reason to work, it will be difficult to motivate yourself to save money every month. Set a measurable goal. “I want to be rich” is a vague attitude, and “Save 3 million for an apartment in 5 years” is a clear task.
But stay realistic. With an annual income of $15,000, it will be difficult to buy a yacht. Make sure that the goal is achievable and divide it into small steps that will help you track the process and feel successful.
8. Build a financial plan
The financial plan should cover all monetary issues and the period that is necessary for their implementation: the purchase of real estate, pension, tuition fees for children. Any goals become difficult to achieve if you have no plan. It is necessary to understand how they are related to each other. So, you will know when to switch between tasks and focus all your attention on one or two that are priorities at that point in time.
9. Give up credit cards
To stop being “poor” every month and start controlling your finances, stop using credit cards. This is one of the most “toxic” types of debt with large interest rates. Try to close your obligations to the bank. Find out the exact amount that you have to pay. Determine the term and maximum monthly payment that you can make to cover the debt and that will not hit your base budget for the month.
Make paying off your debt a priority. After you say goodbye to debts, get on with your financial goals. Try to pay off the loan yourself. Don’t take another loan to pay off your monthly payment. This is what drives a person into a deep debt hole. If you do not have anything to pay, it is better to borrow money from friends or relatives.
10. Start saving
Savings are an important part of a financial issue. Regularly set aside a percentage of any income (salary, bonuses, cash gifts). On the recommendation of financiers, it should be equal to 10%. If you find it difficult to “tear” such an amount from the budget, try starting with 5% or even 1%. This will help to form the habit of saving. Gradually increase the percentage over time. Remember that it is important to save money before you start, not after spending.
11. Try a “financial fasting”
An interesting challenge that you can throw yourself to learn to better control your finances is a money “hunger strike”. Set a specific time interval and determine the minimum budget for it. For efficiency, it is better to conduct such an experiment within a week. You’ll have to review food purchases, leisure time, and transportation costs. This practice knocks you out of your comfort zone but it teaches you to think fresh and understand what things are really important.
12. Take care of your pension
You need to monitor your retirement savings from the moment you start working. Standard government contributions are almost guaranteed to be insufficient. Therefore, create a personal account for retirement and start saving for old age. You can use bank deposits. Thus you will protect your money from inflation and earn some money.
13. Find additional sources of income
Sometimes financial problems are not associated with large losses but with weak revenues. Try to organize additional income, for example, renting out a property or online earnings. This will strengthen the financial position and prevent negative circumstances from hitting it hard.
14. Improve your work skills
Improving professional skills is one of the basics necessary to hold on to a position, increase pay for your work or move to a more worthy position. Stay competitive. Get additional qualification certificates, take courses, and develop skills that make your work more efficient:
- Social skills;
- Creative approach;
- Strong analytical skills;
- Positive thinking and stress tolerance;
- Ability to apply knowledge in practice;
- Patience and perseverance.
And do not forget that it is important that all this is visible to the employer.
15. Get the most out of your work
Good companies offer employees health insurance, dental care, free sports classes, food, transportation, and office services. But not all employees enjoy such benefits. Make sure that you are familiar with the entire list of bonuses from the employer. Some of them will help you save a lot.
Tags: budget, budget planning, financial, money