Budgeting 101: Get Your Finances In Order

Having a proper budget is important in terms of financial stability. However, creating a budget that works for you and your lifestyle may seem difficult if you are just starting out. There are various ways to go about budgeting and doing so can allow you to live stress-free in regard to your finances. If you are unsure of where to begin, here are four ways you can get started on the path to getting your finances in order.

Assess Your Income

Before you can create a budget, you first must be aware of where you are in terms of your income. You can begin by looking at your net income after taxes and organizing your pay stubs to ensure that you remain organized throughout your budgeting process. Once you are aware of your monthly income, you should also make note of your monthly expenses. This will allow you to know where you stand financially after all your expenses are paid. 

Monthly expenses can be things such as rent or a mortgage, gas, groceries, and utilities. You should also factor in any debt from credit cards or loans that you have acquired over time. By tracking how much you are spending on these items you can then see if your income outweighs your expenses to then create a proper budget. 

Choose a Strategy

There are plenty of ways to go about creating a budget, but it is important that you find a method that works best for you and your financial situation. One way you can do so is with the 50/30/20 rule. This strategy has become more popular in the budgeting world and has 50% of your income going towards housing, transportation, and utilities, 30% for recreational activities such as going out to dinner or traveling, and the last 20% for saving and investing.

Another method that can help you get your finances in order is the envelope budget. This strategy created by finance guru Dave Ramsey is an easy way to set money aside for when you need it. It requires you to put cash into individual envelopes for various categories of your expenses such as groceries, housing, or entertainment. With this method, you are able to consistently track your spending, due to the fact that if you run out of money in the envelope it shows that you have overspent for the month. However, if you have cash leftover, you can adjust your budget for the upcoming month and allocate your funds accordingly.

Limit Spending

The main focus of a budget is to save money, so being aware of how much you are spending is a crucial factor in successfully getting your finances on track. Take the time to assess what you are actually spending your money on and determine what is a necessity and what purchases could be considered frivolous spending habits. If you find that there are expenses that you are unwilling to remove from your budget, consider finding ways to limit how much you are spending on them, or try to find a cheaper alternative. 

One way you can limit your spending is by removing your bank card information from websites that you frequently visit to make a purchase yet would not consider it a necessity. Doing so can make it more difficult for you to spend money online due to having to manually re-enter your information each time. 

Remember that some companies will send you additional emails or advertisements if you leave items in your cart, reminding you to go back and complete your purchase. To prevent the temptation from going back to the website to finish your transaction, refrain from putting anything in your cart for later so their algorithms don’t tempt you with their boomerang tactics. 

You can also do something as easy as waiting before making a purchase. For example, if you find yourself wanting to buy something, sleep on it and if you still want it or find it necessary then you can move forward with the purchase. This can help to prevent splurging on unnecessary purchases and help you to save money. 

Invest Your Money

With a proper budget, you will be able to save money, and in doing so you should then consider finding ways to then invest your money as a means of passive income. Buying and investing in stocks is a great way to invest and is a simple way of earning some extra cash. Consider doing some research on what stocks you may be interested in and what fits in your budget, as you do not have to spend a lot of money to get started in the investing process.

Another way you can invest your money is by setting up automatic savings plans. If your bank offers a round-up program, this can be an excellent way to put extra money aside without having to think about it. Programs like this round up your purchases and put the difference into your savings account. Other automatic savings programs such as a 401k are also an easy way to save money for the future if you need it. 

No matter how your budgeting journey begins, it is important to remember that this is a means to ensure your finances are on track. Having a budget can help to prevent overspending, save more money, and reach your financial goals. No one said limiting your spending is easy, however, the key is to be aware of what money is coming into your bank account, what recurring expenses you must manage, and what money you have leftover after it all. 

A great tip to not overspending the money you have leftover at the end of each month after you’ve paid your obligatory expenses is to keep your goal in mind. If you need to write it somewhere near where you might keep loose cash for saving purposes, or on a post-it note near the device you check your finances on, keeping that goal top of mind will help you reach your optimal financial state.