Budgeting is that word that either makes someone feel liberated or constricted. I want you to think of budgeting as a plan. It allocates your money to the areas of your life that you value most.
On the road to financial wellness, you’ll need a plan and a budget is a spending plan.
5 Steps to Budgeting the Right Way
Analyze your monthly spending capability
The first step to budgeting is figuring out where your money is going. You want to assess how your money is being spent. This is the most eye-opening part of the budgeting process. And also the area where most are resistant. It’s where you confront your spending decisions.
Write down a complete list of where your money is going. Grab all your bills and your bank statements to determine where your income is spent.
Identify your financial goals
Once you’ve analyzed where your money is going, then identify where you want your money to go. This is budgeting. You’re allocating money to the areas that are important. These areas include necessities such as housing, food, transportation, and healthcare. It will also include things you need to pay for such as debt and savings goals. And your wants such as upgrading your lifestyle.
Utilize the apps and tools designed to monitor your budget
Now that banking, shopping, and overall financial management has taken a huge leap with apps, there are a variety of tools out there that are intended to make financial planning and money management easier to handle.
With just one password, you can manage your finances, utilities, daily deals, travel and rewards programs, magazine and Netflix subscriptions, and more.
Use apps that make monitoring your spending easier. Apps like Personal Capital and Mint are ideal candidates. Check the financial marketplace for the best financial tracking apps that suit your needs. Keep in mind most “budgeting” apps are really spending tracker apps. They are part of your financial toolset.
Ensure that getting out of debt is a top priority
It’s essential to incorporate a solid get-out-of-debt plan into your budget. If you have large amounts of credit card, student loan or other debt, make sure that you’re paying at least the minimum monthly payment (and paying it on time). If you can, pay even more — larger payments will ensure that you pay less in interest over the long term.
- Consider using the debt snowball or debt avalanche method for a better repayment strategy.
- A credit card consolidation loan may help get multiple credit card bills under control.
Revisit your budget at least every six months.
Even the savviest budgeters should revisit their budget at least once every six months in case they need to make any adjustments. For example, perhaps your financial situation has changed and you’re making less money. If that’s the case, you’ll need to determine areas where you can cut back on spending so you don’t go over budget.
If you are making more money, on the other hand, you may be able to increase how much you’re putting toward important expenses, such as your student loans, credit card debt, or savings account.