Instead of shying away from the term ‘budget’, let’s start to view it as a tool that can help us consciously allocate our spending in ways that give us maximum joy. Here are 4 simple steps on how you can make budgeting work for you:
Understand your “Pie”
At the present moment, we are limited to a fixed sum of money for our spending purposes. Think of it as an individual “pie,” which may expand over time through raises or other sources such as passive income and inheritances. This is essential knowledge when it comes to creating a budget since what we have at hand will determine how much can be allocated in each category.
To begin budgeting, you must first assess the amount of money that is available to allocate. How much does your annual income equal? Are there any other sources where more funds are earned? The combined total ultimately determines how much we can spend in order to optimize our pleasure and contentment. While we should anticipate a certain level of earnings each year, it’s never guaranteed; therefore, make a judicious forecast while also preserving some finances for an emergency fund or “rainy day.” Despite not being the most exciting way to use your hard-earned salary, having financial security may be even more gratifying than originally thought!
If our bank accounts swell, it’s essential to resist the temptation of ramping up our lifestyle. For instance, just because you are rewarded with a higher salary doesn’t mean that your residence must be more costly or you need to join an elaborate gym. Make sure that you choose wisely and use this extra income for achieving the financial goals which matter the most.
Figure out What Makes You Happy (and what doesn’t)
It can be so easy to waste money on items that don’t make us happy, simply because we think it’s what is expected of us. How many expenses are for you and your individual aspirations? Are there obligations such as shopping trips or fancy cable channels that you find yourself wishing were minimized? Now consider the activities and purchases which genuine joy is derived from – how much do those makeup in our spending habits?
This is your invitation to contemplate the money you spent in the last year. What made you pleased and what would be better left behind? Watching that student loan balance go down might bring a tremendous amount of pleasure and contentment. Setting aside funds for an apartment could make you feel financially secure, so much so that it could just as well be priceless!
Take a moment to prioritize your current spending. Is it truly important, somewhat essential or simply irrelevant? There may be items that you would love to purchase but aren’t currently doing so – add them to the list! Above all else, be honest with yourself when making these decisions; this is an opportunity for you to decide what’s really crucial in life.
Which Expenses are Fixed (for now)?
Although there are numerous fixed expenses such as rent, phone bills, healthcare costs and cable that we just have to pay month after month regardless of our wishes; some of these long-term invoices can still be altered. For instance, if you crave the opportunity to invest in other areas of your life that could bring more joy – why not look for a new place with lower rental fees when it’s time to renew your lease? If you find yourself with an exorbitantly high medical bill, why not look for a job that provides full health coverage? That way, your money can be put to better use elsewhere.
Although we can’t make sudden changes to our fixed costs, once the objective is set, we can take steps toward reducing them.
Know Your Targets
Once you allocate your financial resources and determine the needful priorities along with fixed expenses, you can give a number to each item in the budget. I think it’s best to make budgets on an annual basis since there are certain months when additional costs arise like vacations, birthday gifts, taxes for accountant payments or wedding ceremonies.
Constructing a budget annually is essential, but it’s equally important to delineate that into more manageable monthly and weekly objectives. You must know exactly how much you plan on expanding on groceries, membership fees for the gym or club of your choice, coffee money (for those mornings!), loans as well as public transportation – whatever your expenses are! Knowing precisely what you are setting out to attain financially in each category will enable you to stay true to this goal.
Keep in mind that budgets are not set-in-stone. If you understand you’ve allocated too little for groceries, then make the necessary modifications! Every time we commit to a purchase there is an opportunity cost; will it be new shoes or a more lavish apartment? Prioritize what brings true contentment and budgeting can become a helpful tool rather than an arduous task.