Yes, the best tips for creating a budget that actually works for you have been hidden from you. Now, before you zone out, hear me out. I know and understand that the “B” word brings anxiety and panic attacks, but it does not have to.
If you do it the right way, it will become second nature and you do not even have to think about it. Follow these simple budgeting tips and watch your finances take a positive turn.
Let me stop talking and actually get into the details.
Tips to creating a budget that actually works for you.
1. Define what financial freedom means to you.
Living a financially stable life is different for different people. As they say, different strokes for different folks. The good news is that no two financial journeys need to be the same. You have the power to create your journey to suit your needs.
For some people being a millionaire before 30 is important and they work hard towards that goal. For others, the goal is to have more money at the end of the month than more months at the end of their money.
The truth is, both these people will be very fulfilled if they achieve their goals irrespective of how different the goals are.
You define your financial freedom and be prepared to do what it takes to achieve it.
Write it down. After you have decided what financial freedom and financial peace look like, get your pen and paper, not the notes section of your phone, and write it down.
Dreams only become a reality when we write them down and make them visible. Paste them on the fridge, bathroom mirror, or cabinet alongside your bed.
Remember the out of sight out of mind quote?
Yes, it is true. So do not fall for the trap of making a mental note. Your memory is not as special as you think, that’s why you need to write it down and make it visible.
So, before we talk about creating a budget that actually works for you, take a moment to reflect and think about financial peace.
2. Consolidate your income.
Once you have defined your financial journey, it’s time to look at how we will fund that journey. Your dream can only be achieved through financial income which is where we will start.
Look at how much money you earn and the frequency of that income. I do appreciate that self-employed people may not have a fixed income at regular or known frequencies, but that does not mean that they are exempt from this step.
If you have irregularities, then review your income for the last six months and use that as an average. Do not be too obsessed with accuracy if you do not have the right tools.
But remember that this budget will help you get closer to the accuracy of your actual income, so the fact that you do not have it now should not faze you.
Income varies from month to month and from week to week, so be honest about your income. Add your salary, bonuses, birthday gifts, allowances, etc.
The more consolidated view you have of all your income, the stronger your financial foundation is. Creating a budget that actually works for you starts with your income. Know it and understand it.
3. Dedicate all your efforts towards your Debt-free journey.
It really does not matter what your journey of financial freedom is, you always have to start with getting rid of consumer debt. Write down all your current debt, including credit cards, student loans, payday loans, car loans, mortgages, etc. This will allow you to see how much debt you have.
What you do not know, you cannot fix.
I understand you may be panicking or scared to combine all your debt but face your problems head on. Confront accurate numbers and you will be well on your way to success.
Once all the debt is looking at you, decide to attack it with a vengeance. Go at your debt at full speed. This means any money you have that does not go towards your basic survival should go towards debt.
This means you take a pause on savings and use those savings to pay off debt. That’s because debt eats away at your interest faster than any other savings account.
All your energy should go toward paying off debt. It’s the only way to win your debt-free journey.
4. Automate your Monthly savings.
Once you are done clearing your debt, the next thing is to take all that money and start your savings. There are many kinds of savings that you can do but I want to suggest you start with building an emergency fund.
This will give you peace of mind and when life happens you will not go into debt, instead, you will use your savings to cover any unforeseen circumstances.
Next time you have a geyser burst or tire puncture, it will just be a minor inconvenience that does not throw you off your medium- and long-term financial goals.
After your emergency fund, start saving for important things like children’s tuition, vacation, medical emergencies, Christmas, Thanksgiving, Easter, Date Night, Tax Season, or anything that makes you happy. Life is fun and worthy of enjoyment if you build the right savings.
Automate all the savings.
Do not rely on yourself to put money into your savings, build a system that automatically saves money for you. Schedule the bank to automatically debit your account and credit the different savings accounts.
Automation brings consistency and consistency brings wealth, and it puts you closer to your dream of a financially peaceful life.
When we talk about creating a budget that actually works for you, we include having a set disciplined savings challenge routine.
5. Prepare for Retirement.
Stats show that many are not prepared for retirement. We are so focused on living day to day that we neglect what the future will look like. We forget that we will need to survive on something when we cannot work anymore.
Automate your retirement savings just as much as you have automated all your other savings. When it comes to retirement you need to understand that if you do not save then you are headed for poverty when you retire.
Find a financial advisor to help calculate how much you will need to save monthly for you to live comfortably during retirement. The earlier you start with retirement, the more the compound effect will work in your favor.
Only the naïve ignore retirement savings. Do not become one of those people.
If you do not save for retirement, you will have to work until you die and never get to rest and enjoy your grandchildren and great-grandchildren. You will become a burden to those around you as they must provide for you.
Remove that burden from your family and your loved ones.
If you have no retirement savings try to add more money into your savings.
6. Write down the Fixed expenses.
Although you are preparing for tomorrow you need to live your best life today. Do this by writing down all the fixed expenses that affect you monthly. Fixed expenses include:
- Rent, Mortgage Repayments
- Transport, Gas
- Insurance (Medical Aid, Car, Home, Life Insurance)
- Children’s tuition, Day Care
- Subscriptions (Entertainment, Internet)
- Water & Electricity (Amenities)
Amend this list to fit your needs. Add all these costs together and you now know how much minimum money you must have each month.
An extra tip here is to find ways to reduce your fixed expenses. Find ways to bundle up your insurance so you can get a better deal. Negotiate a decrease in your subscriptions or cancel them.
7. Manage the Variable expenses.
Next, look at the most challenging category which is the variable expenses. This is the list of expenses that change from month to month. Some expenses only happen once in a long time like taking your car in for service, birthday gifts, or conferences that you want to attend.
The important thing to remember here is that variable expenses cost us the most every month. Mostly because we struggle to plan for them.
I suggest you start drawing up your budget early so that you can prepare for the next month.
Creating a budget that actually works for you includes adding variable expenses. It consists of being honest about how many takeaways and restaurants you actually spend money on.
8. Live a frugal life.
Yes, frugality is the best way to stick to a budget. You choose to live a life that allows you to stick to a budget.
Frugal living is a financially friendly lifestyle. Many live it and follow it daily. We have the best tips for you to live a frugal life here.
Frugality is about spending as little as you can but getting the most out of it. Maximize the value and benefit but reduce the costs. You can still enjoy life and get the most out of it without eating caviar every day. After all, life is worth more than caviar.
Allow yourself to choose a different lifestyle than the most common one. Try something new and you may just like it. The world is changing so allow yourself to change as well.
9. Have medium to long-term financial goals.
Creating a budget that actually works for you means that it must focus on both your short-term and long-term goals. You define what those goals are and how to reach them.
Long-term goals could include buying a house in cash or moving your whole family to a new country altogether. Maybe you intend to dive into real estate and are saving to buy property cash. Some medium-term goals may include paying off your house.
While you are looking at how to build your career and your family, allow yourself to have financial goals as well. These can be just for you or your family.
Whether it’s getting that yacht you have always wanted or that international trip that you have dreamed of since you were a child, start planning for it financially. That’s what creating a budget that actually works for you looks like. Allow yourself to dream and dream big.
You are rewarded with the life of your dreams by just following a budget.
Golden Tip
10. You will sometimes fail but do not lose sight of the bigger picture.
Dealing with finances and taking charge of your money comes with ups and downs. Just like everything else with life. There are highs and lows. Just because you experienced lows doesn’t mean that you are a failure.
Remember that you fail, but you are not a failure. Get back up and try again. Setting up a budget once does not mean you will follow it fully. It can take up to three means to fully adopt a budget and follow it.
So, be patient with yourself. Take baby steps and you will eventually walk and then run.
If you overspend or get another credit card during the journey, then just know that you have made a mistake but that’s all it is. A mistake. You can still get back on the horse. The only time you have lost in this journey is if you die.
These are the best tips for creating a budget that actually works for you. I know there are more of these tips, please share these with everyone out there.
