Some people have inner accountants that love to pick up their metaphorical pens and write down everything they purchase, planning their expenditures and so forth. Or, they will use free budgeting mobile apps to keep track of their spending.
If you don’t have that inborn sense of making your lists and checking them twice, you’re on the right page. You’ll learn dozens of practical budgeting tips, including those to make passive income.
Table of Contents
1. Save When You’re Spending
Everyone has that parent or an elderly neighbour who’s always using coupons. The modern version of those coupons is using specific credit cards or apps that get you discounts.
There’s a significant problem:
These easy-to-get rewards lure you into purchasing more than you need. For instance, you can use Price Kaki to get the cheapest bread in your area, but what if this hunt for affordable products makes you get more stuff?
Remember: It’s fantastic to hunt for bargains, but stay focused and never buy more than you need.
If you end up in credit card debt, the best option might be to borrow from your friends/family to pay off the credit card debt first. This is because their interest rates are extremely high and will snowball quickly!
When budgeting, write down everything you’re purchasing to see what’s essential and what isn’t. For example, you have a membership for fitness and spa.
Ask yourself this: Are you really using those fitness machines? Are you going every day or just twice per month?
So, consider what’s essential for you and what you can live without.
Have you heard of the 50-30-20 budget rule? It means to split your salary into three categories. 50% for the necessary payments, 20% into your savings and 30% for other factors.
Remember: Conscious spending is key to practical budgeting.
3. Work With Your Partner
Budgeting wisely is almost impossible if you don’t have your loved one’s support. When you restrict your purchases, and the other one doesn’t, life can become frustrating.
So, try to explain why budgeting is essential for your life together. People are different, and the method that works for you won’t work for somebody else.
Remember: Once you reap the benefits of conscientious budgeting, you’ll never want to go back to careless spending.
4. Don’t Take Unsure Payments Into Account
Some sources of income are uncertain. For example, you can count on your salary with almost 100% certainty, but you can’t count on alimony or interest rates in the same way.
Or, you could be a freelancer working in Singapore and you never know when your next project will come in.
Here’s what to do instead: Wait until you’ve received that money and include it into the next month’s budget.
Remember: If you have stock investments or waiting for your ex to send you some money, don’t count on that cash until you get it.
5. Include Savings In Your Budget
Savings shouldn’t be optional; they should be a must. Here’s what happens most times:
People spend their way through their paychecks, sometimes even use their credit cards for extra cash, and start all over again next month. If they have something important to look forward to, like a visit to the dentist or buying a brand new washing machine, they save a few months in advance.
Here’s what you should be doing: Discipline yourself to save each month at least 10% of your salary.
Remember: Each time you receive a paycheck, put aside at least 10% for rainy days. Also, check out the best savings deposit according to the interest rates and conditions.
6. Count everything
When people write down their expenses, they start enumerating things like bills, loan instalments, groceries, cosmetics, and subscriptions.
99% of them usually forget one tiny detail: Small incidentals.
Of course, you can ask who cares about those $3 you spend on coffee and a doughnut during your lunch break? Who cares about that soda you get from a vending machine? Well, $3 x 5 days per week x 50 weeks equals $750/ year. So in the big picture, spending those $3 each day counts.
Remember: Include literally everything you’re spending in your expense budget with as much precision as possible.
7. Be Specific
The primary purpose of budgeting is to cut down unnecessary expenses. So, the first thing you have to do is write down everything you spend with as much precision as possible.
Here’s why that’s important: Let’s say you have a category called “food” that depletes your budget of $1,000/ month. So, after you’ve finished your budget and go over the expense list to see where you can cut from, you’ll skip over the “food” category.
Of course, you do.
You can’t cut down on food.
Except you can, because those $1,000 for food include dining out. So you can cut back on dining out four times/ month to 1 time/ month. Alternatively, you and your friends can take turns inviting each other for home-cooked meals.
Remember: Be very specific when budgeting.
8. Set Correct Targets
Let’s be honest. Nobody spends the same amount for groceries, bills, or transport each month. Here’s how you can plan your future expenses better:
Either you average the past three months and add that target in your budget or:
Find the maximum amount you’ve spent in the last three months for these things and set that as your target
Remember: Accurate targets ensure your budget reflects reality correctly.
9. Be Flexible According To Each Season
Each season has its particularities. For example, you can go on holiday during the summer and buy more gifts around Christmas.
So, take into account these patterns and plan accordingly.
Here’s what you can do:
Set a different budget for each season or:
Use the maximum expense/ minimum income as targets. When you have more money at the end of the month, reallocate those funds towards paying your debt or growing your savings account
Remember: Leave breathing room for unpredictable expenses and cash flow differences between seasons.
10. Include Debt Repayment In The Essential Expenses Category
Many people disregard loan installments and credit card debt. When their incomes take sudden hits, those installments are the first to be ignored.
As you’ve probably figured, that’s a severe mistake.
Interest rates – and especially credit cards’ rates – can grow like mad. If you sink into this sort of snowballing debt, you may not be able to get out quickly.
Remember: If you’re in a financial crisis, don’t default on your loans. Instead, consider a debt reconsolidation loan or negotiate with your lenders.
11. Reevaluate Your Budget Twice Per Year
Budgeting isn’t a fixed plan that you’ve made once and use as a norm forever. Remember to be flexible and re-check your budget every six months to make sure you’re on target with your income and expenses.
Here’s why this helps: When you’re looking at past expenses through several months, you can spot spending leaks better. That’s how you find useless things you’re spending money on. The next step is cutting those out of your budget.
Remember: Double-check your budget twice per year, and focus on your expenses.
12. Plan According To Your Goals
Let’s say that your goal is to save some money, and you’ve met that objective. Now, it’s easy to act chaotically if you don’t set another target. For example, you can pay a larger loan, renovate your home, and go on an expensive holiday – all within the same year.
And obviously, that’s a mistake that will cost you everything you’ve worked for.
Instead, each year you should set a quantifiable and realistic target for the next 12 months.
Remember: Set just one goal per year and break it down into smaller objectives to ensure success.
13. Find A Reliable App
Budgeting takes a lot of your time if you’re doing it manually. You have to add, subtract and calculate everything yourself. Then, you’re supposed to make comparisons, evaluate results, reset your targets and reorganise your budget.
Yeah, that sounds like a pain.
Luckily, budgeting apps were invented to save us the hassle. You can research these tools to get one that really fits your personality and needs.
Remember: Budgeting apps are different, so you should pick one that fits your style and goals.
14. Think Outside The Box
Very often, when you believe that something is true because it makes sense or your community taught you that thing, you forget to question it. Here are a couple of common myths:
You have to work harder and for longer to increase your income.
If you want something, you have to save money instead of asking for a loan.
These sentences aren’t false, but they don’t represent absolute truths.
Here are some equally valid alternatives:
You can increase your earnings by asking for more money from your employer or by making passive income.
You can obtain a loan to facilitate more earnings/ more savings in the future. For example, a home loan is cheaper than paying rent.
A Mini Conclusion On Budgeting
Budgeting conscientiously allows you to reach your goals smoothly. However, the first thing you have to do is set a goal. After that, you should make and evaluate your budget carefully.
Here’s a shortlist to get you started:
Calculate your income/ month, but don’t include unsure earnings (alimony, interest, performance bonuses)
Make a list of all of your fixed expenses:
Eliminate useless expenses
Set your budget and follow it rigorously, but leave some room for unpredictable events
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