When you prepare a budget, you are preparing an essential component of financial planning. A budget is the first step toward achieving your financial independence; therefore, you should always know how much money you have, how much money you have spent, how much money you can spend, and what amount of money you should save. The true task is sticking to the budget that you have created for yourself. This is true regardless of what bills you have, such as a mortgage/rent, insurance, medical bills, and utility payments, in addition to other personal and business expenses.
Lists are Important
Preparing a list when shopping or paying bills may seem trivial, but this is an important practice to maintain when you want to stay on budget. The lists that you prepare should be for everyday expenses, not just a grocery list. Some examples of everyday expenses include:
- Gas Services
- Beauty Supplies
- Laundry Services
- Household Items
- Hardware Store
The fact is that these lists help you stay aware of how much money you have spent. This allows you to better prioritize your future purchases, which leads to better cash flow. Making a list also helps prevent you from making unnecessary purchases that are not within your budget.
Log Your Expenses
It is important to keep a log of your daily expenses. Do not wait until the end of the week to tally up your expenses; instead, get into the habit of logging your expenses each day. This practice could help improve your budgeting skills by keeping you aware of your spending in real time. You should always request a receipt when you make a purchase so you can keep an accurate account of what you have spent for the day. If obtaining a receipt is not possible, be sure to use the same debit card or credit card for those purchases so that you can view the total amounts online. When paying for an item with cash, you should always request a receipt; this not only helps you log your expenses, but it is often your only proof of payment. Logging your expenses on a daily basis helps you become aware of your spending habits, and it allows you to cut out unnecessary spending.
Only Spend What You can See
It is always best to use cash for your purchases; this helps you spend only what you can see. When using debit cards or credit cards, you may be tempted to spend more than you originally budgeted for the day, week, or month. Paying with cash also helps you remember the importance of a dollar; some financial analysts believe that people value cash more than credit or debit cards. Using cash for your purchases can help you become more conscious about your spending. Try to use cash instead of debit or credit cards within the first few weeks of creating a budget. This helps you see the physical exchange of money, and makes you more aware of your spending.
Save Money for Incidentals
If you create a good budget, it should include a savings for incidentals. These “sometimes expenses” are almost always impossible to foresee, which is why you should set aside an emergency fund should they occur. Some of these unforeseen expenses include:
- Medical Expenses
- Household Maintenance
- Car Maintenance
- Children Expenses
- Last Minute Business and Personal Trips out of Town
When you set up a rainy day fund, it helps you stay on budget when you have emergency cash situations. This also prevents you from using your credit card to pay for the purchase, which increases your debt. Set aside a specific amount of money that you will save each week or month, and stick to it.
Make Savings Contributions Automatically
Saving up to 10 percent of your earnings each pay period can help you save money, and stay within your budget. There are a couple of options available to you. If you simply want to save the money, just place the extra funds into a savings account. To earn interest on the money you are saving, choose a short-term or long-term savings plan. You can have the money debited from your direct deposit each pay period, automatically. When you do not see the money, it is hard to miss it, which makes this option great. Saving the money in a savings account prevents you from spending those funds and going off budget; it also allows you to earn money (interest) at the same time.
To maintain a healthy financial future, you must build a strong relationship with your finances now, and that begins with a budget. If you tend to the budget diligently, you could improve your financial well-being.