For most people, budgeting is all about restricting spending so that there’s a nest egg for some far-off time in the future. Everything feels kind of intangible.

However, good budgeting is not about limiting yourself or thinking in terms of being hypothetical. It entails allocating your finances to things that really matter. You want to have money for the things that are important in your life while avoiding spending your money on unnecessary items.

Moreover, with life getting more expensive by the day, staying on top of your personal finances will help make sure that you have enough money to cover your bills now, while also letting you enjoy yourself and plan for the future.

When you get comfortable with budgeting, you will:

• Be able to plan for the future such that you will feel less anxious about what is to come.

• Have money available for the things you love or really care about.

• Be able to plan for your dream house, trip, etc.

• Stop wasting your time and money on superficial things you don’t care about.

• Gain more control of your life.

• If you have been looking for effective ways to budget your money better, we have you covered.

1.Come up with budgeting goals

For most of us, it’s hard to save money for the sake of saving it. We need to have a purpose in mind for saving, otherwise, budgeting will feel pointless. Some of the reasons you should consider setting budgeting goals include:

• Paying off any existing debt.

• Saving up for vacation.

• Saving for a house.

• Planning for retirement so that you won’t have to work forever.

Setting achievable goals will also help make budgeting a little easier. When you know exactly what you’re looking to accomplish, you will be more likely to accomplish it. You have probably heard of SMART goal setting. It’s a great way to set up your budget. It simply means that your goals should meet the following criteria:

• Specific: What exactly are you looking to save for?

• Measurable: How much will you be saving from every paycheck?

• Achievable: Will it even be possible to realistically achieve this goal or is it a dream?

• Realistic: Will you be able to reach this goal with your current expenses and income?

• Time-bound: When do you anticipate reaching this goal?

You should establish your priorities but be realistic enough such that you won’t end up giving up on budgeting in case an unexpected expense comes up.

2.Know your fixed expenses

Before you even start planning your budget, you want to first figure out your fixed expenses in full. This will ensure that you know how much money you have to pay out every month, no matter the changes in your income. Some of your fixed monthly expenses may include the following:

• Utilities

• Rent or mortgage

• Insurance

• Minimum credit card payments

• Loan payments (car loans, student loans, etc.)

• Desired investments, savings, or any additional debt payments

The last point is especially important. You have to calculate how much you need to invest, save, or use to pay your debt first. In case you’re setting aside some money but are still paying high interest on any lingering debt, or saving up for a holiday trip but have nothing saved up in case of emergency, then you’re not getting ahead with your finances.

When you’ve figured out your fixed expenses, you should then determine what is left. This is your “spending allowance”. You could use this amount on whatever makes your heart sing. To find out what’s left, you can do the following:

• Sum up all your fixed monthly expenses

• Calculate your total monthly take-home pay

• Minus the fixed expenses from the take-home pay

Keep in mind that, in case something big happens, such as an illness or an unexpected car repair bill, you might need to spend this money on these and have less for the fun stuff. This might suck but is also the reason you should always have an emergency fund.

3.Track your spending

To get better with budgeting, you want to understand exactly where your finances are going. Your fixed expenses will remain roughly the same each month. However, your variable expenses fluctuate, as they will largely depend on your spending habits, such as eating out instead of cooking, and so on.

This is why you need to track your spending so that you can see how much your variable expenses are costing you. For a full month, track how you spend your income without making modifications to your routine buying habits. Then, at the end of every month, assess where your money went.

When you track your spending for a full month, review the details to see where your cash mostly went and where you could cut back. Everyone has some financial leaks that can easily be filled when we take a closer look at our spending.

Don’t forget that you don’t have to cut back on everything. You just have to work on getting rid of the purchases that don’t help your overall goals or match the goals you set in the first step.

So, how do you go about tracking your spending?

Since everything has been digitized these days, it makes sense that budgeting can go digital too. Of course, you can still use an old-school spreadsheet, especially if you prefer the accountability of tracking everything manually. If you prefer something a little bit high-tech, you can’t go wrong with a good app.

Rather than assessing your spending manually to ensure you stay on track, using budgeting apps can help you monitor and analyze your spending better. In turn, this can make it easier for you to see where your money is going, and the changes you could make to improve your cash flow.

Embrace frugal living

One of the key steps when it comes to budgeting your money is embracing frugal living, to help you achieve your financial plans without limiting yourself too much. The following are some practical tips for frugal living:

• Prepare your meals at home

• Find ways to lower your grocery bill

• Lookout for promotional offers and deals

• Attend free events in your community to avoid breaking the bank on entertainment

• Consider cutting down any fixed expenses you don’t use that much

• Find low-fee or free banking options

• Avoid common money wasters like lottery tickets, late fees, impulse buying, or excess food that will just end up in the trash

Based on the spending habits that you tracked in the 3rd step, you should be able to see areas where a frugal attitude could be helpful so that you can stay focused on your financial goals.

5.Choose a budgeting method

The good thing about tracking the numbers and analyzing your spending habits is that it will make it easier for you to execute SMART goals. When you’re fully aware of the money that’s coming in or out, you will better understand some great ways to budget your income.

There are many budgeting methods out there, the most common of which is the 50/30/20 method. It works as follows:

• Use 50% of your income on fixed expenses like rent, groceries, utilities, or mortgage payments.

• Use 30% of your income on lifestyle choices like dining out, entertainment, and fun.

• Use 20% of your income on savings and debt payments.

Of course, your income may not exactly fit into this model. For instance, if 50% of your income goes to rent, it’ll be difficult to work on other things. However, this doesn’t mean giving up on your financial goals. There are many other budgeting options out there, including certain unusual methods, so go for what works best for you.

Final thoughts

The main takeaway of this post is: budgets without a purpose won’t work. We’ll simply have a hard time sticking to them if there are no tangible reasons to.

Instead, the best approach is to have a reason for budgeting. Whether you’re saving up for a one-off holiday trip or retirement, you should align your budget with your values.

You can then set up a spending plan after seeing how your income compares with your fixed expenses and financial goals. Get rid of anything that is not important or necessary for your goals.

Consider hiring a financial advisor to help you with your plans and goals. Contact us today.