Do You Need to Bother with Budgeting?

Whether you are a small business owner or a parent who wants their family to enjoy their life, budgeting might be something you are considering. 

The idea of budgeting can often seem overwhelming for some people. The idea of having to go through your finances can be a chore, and having to restrict your spending can be a challenge. However, it doesn’t have to be as hard as it seems. When you can understand why a budget may be able to benefit you and how you can create a simple budgeting process for yourself, it might change how you see finances. 

The importance of a budget 

Budgets can help you in a variety of ways when you know how. Regardless of the level of income you receive, it can help you to manage your finances efficiently, help you to understand money better, create and meet goals, and avoid stressful debt. If you don’t have a budget, you may find yourself constantly in the red, unable to meet your goals, spending too much money, and in a lot of stress. 

Reduces financial stress: When you have control over your finances and know where you are, you will feel more stable, have more peace of mind, and your overall well-being will be more relaxed. 

Manage your spending: Budgeting may involve tracking your spending, which can give you a clear picture of what money you have available at all times. 

Increase savings: When you are able to manage your money, pay off your debts, and spend less unnecessarily, you will find you have more money to put away into savings and get better returns on your investment. 

How to create a budget 

#1 Work out your monthly income 

Learn what your monthly income is after tax, so you know how much money you have available each month. 

#2 Track your money 

For at least one to three months, you should track all of your expenses, so you can see what your spending patterns are. This can be done with a notebook or spreadsheet. 

You should also go back and conduct an audit over your finances to gather information for any of your bigger expenses. 

#3 Understand your debt 

Debt can be a difficult thing to navigate, so you need to fully understand what debt you have and what the interest rates are. Regardless of whether you have debt or you may need some financial support going forward, whether it is related to your business or personal finances, Alex Kleyner has some great information on credit management. 

#4 Create a spending plan

Categorize your spending into needs and wants. E.g., household essentials versus going out for dinner. Compare your total expenses to your income, and create some small goals for yourself. Then, reverse engineer your goals into small, monthly steps related to your spending. Make a new tracker that aligns with your spending plan.

This is an excellent place to start when learning to budget your money. Keep repeating the process.