A Monthly Budget For Your Money

No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.

Having a budget doesn't stop you from spending money the way you want it to, but works like a partner to track your spending and allocating resources to help you reach your financial goals.

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Money

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The Envelope System

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

The principles that make a good budget, something you can stick to:

  • Being Realistic: Being too strict is a recipe for failure.
  • Making Adjustments: A budget is not set in stone, but a fluid thing.
  • A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
  • Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
  • Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

Follow these simple steps and start Budgeting:

  • Choose the right tool (Budgeting App, Excel sheet or Envelopes)
  • Gather all information like your bank and investment account numbers, user id's, and passwords.
  • Make a list of all your income sources and all your expenses.
  • Share the important financial and budgeting details with your partner or spouse if applicable.
The 50/30/20 Rule

It breaks down your budget categories into three broad segments:

  • 50%: Essential Expenses like housing, automobile expenses, groceries, insurance, utilities, etc.
  • 30%: Discretionary Expenses (Non-essential) like Dining out, entertainment, drinks, etc.
  • 20%: Financial Goals including mortgage, home, and educational savings.

If there is heavy credit-card debt, the financial goals should be 30% and non-essential spendings only 20%.

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RELATED IDEAS

  1. Gather Some Financial Information: gather a detailed list of your income and expenses.
  2. Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
  3. Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
  4. Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
  5. Reward Yourself: you can work a small percentage into your budget to treat yourself each month.

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IDEAS

Budget for the life you have. When you’re going through your budget and assigning spending categories, be realistic. 

Don’t tell yourself you’ll never buy a single discretionary item, because you’re setting yourself up for failure. Give yourself some breathing room.

  • Myth - I don't need to budget: A budget focus on identifying all the expenses that are likely to occur during the month, quarter, and year. A budget can identify costs that could be reduced or cut.
  • Myth - I'm not good at math: Budgeting software only requires you to follow instructions.
  • Myth - My job is secure: You should always be prepared for a job loss and have at least three months' worth of living expenses in the bank. With budgeting, you will know how much you spend each month.
  • Myth - Unemployment insurance will tide me over: You may be ineligible for unemployment insurance or the benefits may fall short of the amount you need.
  • Myth - I don't want to deprive myself: The aim of budgeting is to tell you where your money is going and ensure you're able to save a little each month, ideally 10% of your income.
  • Myth - I don't have anything big to save for: While you may not have any major savings goals at present, your situation and attitudes are likely to change over time.
  • Myth - I'm debt-free: However, being debt-free without any savings won't pay for an emergency.
  • Myth - I always get a raise or tax refund: It's never a good idea to count on unreliable sources of income.
  • Myth - I don't have the discipline: To protect yourself from your own spending habits, set up an automatic transfer to a savings account.

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