This is because, they don’t budget like pros.
A well-run budget enables you to get out of debt, achieve your financial goals through savings and relieve yourself from the stress that accompanies payment of bills. So how do you budget like a pro?
Step 1: List All Your Sources of Income
Knowing your total amount of income puts you in the best position possible to allocate your cash into your monthly expenditure. So just determine the amount of money you earn from all your daily activities, jobs, personal businesses, investments, etc. Note that this should include salaries and wages.
Step 2: Record & Track Your Expenditures
We recommend that you make an effort for 1-week, 2-weeks or even a month and list all your expenses in a sheet of paper. Writing down the expenses enables you to determine the amount of money you spend in each and every category. You’ll also be able to find out how much you need to adjust your expenditure.
Step 3: Evaluate Your Expenses and then Balance Your Accounts
Now that you have your total income from step 1, as well as your total expenditure from step 2, you can evaluate your expenses.
Try to cut costs and balance your account. On your notebook, draft two columns for general expenses and income. In the expense column, list all your expenses and their costs and then get the total. In fact, you need to segregate your expenses based on their priorities – try to separate needs from wants.
Start with the most basic needs such as rent and food, to the discretionary or optional ones. You can them circle or mark all the things that you can do without.
We understand that there are certain things that you can’t track the amount of cash you spend on them. You can decide to stop spending your cash in these categories and cut costs.
Step 4: Set Your Cash Expenditure Limit
A monthly limit will help you curb your spending habits, especially on non-essential products & services. So make sure that you set a monthly expenditure limit. It should be a reasonable one – enough to sustain you for the whole month. Note that the limit shouldn’t be more than 40% of your total monthly income.
Step 5: Set Your Financial Goals
When you have goals to achieve, you’ll be disciplined when it comes to your spending habits. So whether you would like to have a dream house, luxury car or you want to further your studies, the goal will always help you act on your budget in the right way.
Step 6: Settle Debts & Always Try to Avoid Being in Debt All the Time
Allocate up to 20% of your total income to this category. Make sure that you pay loans before the due date; credit card payments, student loans, etc. We also recommend that you try to limit credit card usage to avoid being indebted in the future.
Step 7: Have Money for Wants & Luxuries
Do you enjoy traveling, eating out, and other lifestyle choices? You shouldn’t be spending more than 20% of your total income in this category. If that’s the case, then it’s easy to cut out the costs. Just cut the cable, eat out less, etc.
Step 8: Savings
Save at least 20% of your total monthly income for emergencies, investments, retirement, etc. Don’t ever withdraw your emergency savings – not unless the “emergency” fits your definition. In case you withdraw any amount of your savings, make sure that that you replenish the funds.
Step 9: Always Stick to Your Budget
This can be tough for many people. But if you can’t stick to your budget at all costs, then you’ve been wasting time reading this article. Learn how to fight “spending temptations” and ensure that you go through your budget at the end of every month.
Step 10: Evaluate and Adjust
You need time to get on track with your budget. At the end of the first, second, or third month, you might realize that your expenditure is over budget. Just try to find out the reasons why, and then make the necessary adjustments. Try to be as consistent as possible and we guarantee that you’ll see the payoffs of budgeting like a pro.
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