How good are you with money? A lot of people struggle with their finances, and it may take a while before they finally nail the trick to keeping them right. Summer is quickly coming to an end, and kids are resuming school. Are you prepared? Do they have everything they need?
Budgeting is an essential aspect of your finances and should be taken seriously. It is what helps you get closer to being financially free. Budgeting is not for the poor, as some people think. Take, for example, Ed Sheeran, one of the most famous musicians globally, still uses his Barclays student account as he never spends much money. Same case to Carrie Underwood. Despite winning over five Grammys, she still packs lunch, and if not, eats the Subway sandwich.
So, why would you not budget and save? The list below shows how and why you need to budget.
- Track your spending
Before you even start budgeting, you need to know how much you spend. There are loads of expense tracking apps that can help you understand your spending habits. Some of them are Penny, Clarity Money, Wally, BillGuard, Fudget, etc. Some of these apps are free, while others have premium options.
By tracking your spending, you get to have a figure of how much money goes out on specific items. This ensures that you get to see whether you are overspending or not. The idea should be not spending more than we earn. These apps will help you know if you spend more or not.
- Know your monthly expenses in details
What exactly do you spend on? What are some of the basic needs? Differentiate between needs and wants. For example, now that summer is over, have you budgeted what your kids will need in school? Do you have groceries included in the list? Mortgage/rent?
A list of expenses you’d ideally have:
- Back-to-school supplies such as pens, markers, backpacks, etc
- Utility bills such as electricity and water
- Debt payoffs such as auto and student loans
- Credit card payments
The above are just some of the basic expenses. Monitor how much you use and see what you can cut back on. You probably eat out a lot; minimize to around once a week. If you pay comprehensive insurance cover for an old vehicle, it may not be necessary, especially if the car’s worth is on the lower side.
- Pay attention to seasonal expenses
There are times you get unexpected expenses, and you are forced to get a loan from your friends maybe or even go for payday loans. The last thing you want is to get into debt. Factor in some ‘caution’ money in your budget for such expenses. It could be your membership is expiring soon, and you need to renew it.
The rule of the thumb should be, saving for a rainy day.
- Consider a ‘sinking fund’ for school costs
A sinking fund is some money you set aside to offset an expected expense. For example, before school reopens, you should calculate the expected amount of money you’ll spend. Once you have a figure, before the date draws closer, for every paycheck you receive, you set a particular portion of it towards the sinking fund. By the time your child is resuming, you’ll have enough money to shop for school supplies and anything else they may need.
If you’ve never budgeted before, be patient with yourself. Nothing gets accomplished overnight. Have the will to know why you are budgeting. See the end term goal as this should be a motivator to budgeting.
Once you master how to budget, you’ll realize how easy it is to save money. The extra money you get should be put into good use. Consider investment options. Also, don’t forget to have an emergency fund as this is equally important.