Making a budget can be such a daunting exercise, especially for first timers. So daunting, that only a handful of people actually create a monthly budget. However, developing a budget that stands the test of time is a major step towards creating wealth and breaking the shackles of financial independence. Budgeting helps you among other things to get out of debt and cut your expenses considerably, thus ensuring a stress-free financial life.
Most people do not know how much they make in a year, and some of us that know how much we make have not really broken down our expenses in categories in order to figure out what we could afford regularly and how much money we should invest. This is why many find it difficult to invest a, and some that invest quickly meet investment brick walls.
As state in the opening paragraph, I know making a budget can be such an overwhelming exercise, hence, the following steps are to help you make your first budget hassle free.
1. You Must Decide to Create a Budget.
The first step to creating a budget is to decide strongly to create a budget. I know this may sound like a cliché to you, but you need to acknowledge the fact that decisioning is the foundational step at attaining anything in life. If you are reading this, I believe it is because you have decided you need a budget, so I congratulate you, because whether you believe it or not, this is the most difficult step for many people including me.
2.You Need to Know How Much You Make and Have
It is an exercise in futility to attempt creating a budget without knowing your worth, and do not worry if you do not worth much or anything at all. Take not of your overall income on weekly, monthly and yearly bases. This will become important in determining your net worth and ultimately help you chat your way out of debt and financial burden. Determining how much you will help you determine whether or not you are living above your means and with that information you will be able to take the requisite actions to address your situation.
After you must have determined your net worth, you must figure out how much you make. This is easier for some than others. For example, those on salaried job can easily figure out how much they make weekly, monthly and yearly. But for those that run their own business or work for wages, say daily wages, it is more difficult to figure out how much they are making but not impossible, hence, for those in this category, determining their average income monthly will suffice.
3. Determine How much you Owe
It is important for you to know your recurring debt if any and any debt you may have at all. You can begin by calculating how much you owe in debt. This is very important to your budgeting success story. The reason may people give up on personal budgeting is because they fail to factor in their debts. Determining your debt profile is also important in determining your net worth.
4. Know your Net Worth
Having determine how much you make and how much you owe, you should figure out your net worth. Your net worth in this instance helps you to determine the value of your financial resources and thus the need to remedy any malaise you may be experiencing financially. When I did this, I was almost discouraged to find out that I was worth nothing whatsoever, but instead of discouragement, I purposed to turn the table around, and while I not where I wish to be yet, I am far from the deplorable position I was when I started my budgeting journey.
5. Determine our Average Recurring Monthly Expenses
This is by far one of the most difficult aspect of making a budget. This is because many of us just live on impulse without really determining what exactly we spend our money on. However, it is important to figure out our average recurring monthly expenses. To do this, you must take note of all household expenses, take not of your bills and how much you spend on each. Determine which of these household expenses are recurrent and which are not recurrent. Categorise your expenses as recurrent and non-recurrent, or general and specific expenses and determine the average amount of expenses for the various categories.
6. Capture the Information in a Database
Having followed the aforementioned steps, you need to enter your information into a database. Your database can be paper ledger, or computer software such as Microsoft Excel or you can make use of online budgeting resources such as Mvelopes to make your budget. Computer software and online resources have made it easier and more efficient for you to create a sustainable and highly adjustable long-term budget. Just do a search for budgeting tools on google and countless resources will be made available to you.
You can even find useful tutorials on YouTube, some of which will give your workable templates for you to begin your budgeting journey. Please note that you can still develop a successful budget with traditional budget ledger, it is just more demanding, and I must confess I sometimes find it more efficient. Although I currently use Excel for my personal budget.
7. Look at the Bottom Line
If you have entered your information into a database as enunciated above, you will immediately discover your bottom line. Your bottom line indicates whether or not you are overspending. By now will discover if you are living within your means, i.e if your expenses are lesser than your income, or whether you are overspending, if your expenses are more than your income. You will also find out if there is any left over that can be channeled into other lofty aspects like investment or savings. In all of the above, you will be informed on the necessary adjustments you need to make to attain a stress-free financial life.
8. Make Necessary Adjustments Accordingly
If step 7 above reveals that you have been overspending, you need to do the most difficult thing in budgeting, and that is, making adjustments to your expenditure. This requires that you develop a table of preference, such that even if you need and item, you must rate such a need with other needs and determine the most pertinent and worthy of your financial attention. To make the needed adjustments, you must note that you must spend only on needs and even among needs, you spend on the most pertinent. You can search for other tools online to aid your financial adjustment process.
9. Adjust as Needed
Change is constant in life, hence, there may be changes in your income due to exchange rate, job loss, pay cut or inflation. When these or related events take place, you must adjust your budget according or else you risk being frustrated in the budgeting process. Inflation always affects cost of goods, particularly food, hence, failure to adjust your budget according will cause your budgeting life to suffer. This is a major reason may backout of making budgets. You need to be abreast of economic realities and effect same on your budget as at when due in order to survive the hassles of budgeting and ultimately affect your financial position positively.
10. Track, Monitor, and Be Disciplined
You cannot finish drafting your budget and keep it hoping to get positive result. Real budgeting requires you to be proactive in order to record expected results. To succeed in budgeting, you need to track your budget performance, daily and weekly. The trick is to dedicate at least one hour a week to go over your budget, read it to yourself, note areas of improvement, note areas that need attention. Doing this will help you commit to your budgeting journey and ultimately to your financial freedom. This will also help you to develop the requisite budgeting discipline for successful budgeting. Without financial discipline, you are only wasting your precious time if you attempt to budget. Financial discipline is at the core of the budgeting process.
If you hope to attain financial freedom and do not have a budget, the best time to have one is now. It is a first among many steps at attaining financial independence. If you have used any budgeting model that works for you, kindly hint me in the comment section below and if you have any queries or questions for me, I am always available to learn from your and to dish out my take to ensure that we all live poverty free lives. Thanks for your time, please share this post of you find it useful.