Today, I discuss how to create a budget so you can achieve financial success.
Table of Contents
- What Is A Budget?
- Budgeting Tips, Financial Planning, and Money Management
- 1) Set Clear Financial Goals
- 2) List Your Expenses and Track Your Spending
- 3) Calculate Your Income
- 4) Create A Budget Template
- 5) Assign Dollar Amounts
- 6) Set Realistic Limits
- 7) Adjust and Prioritize
- 8) Monitor and Track
- Common Budgeting Challenges and How To Overcome Them
- Empowerment Through Financial Discipline
What is a budget?
A budget is “an estimate of income and expenditure for a set period of time.”
Your budget sets clear parameters for your spending so you can ensure your money is being used wisely. With a budget, you have a fixed limitation. However, such a limitation is designed to allow your money to thrive even in the worst conditions.
Without a budget, you can easily justify wasting your money on whatever distraction crosses your path. A budget reduces the likelihood of such waste.
On the positive side, a budget gives you more confidence. If you can control your money, you gain further proof you can control yourself. Self-control is what builds confidence in an individual.
Budgeting Tips, Financial Planning, and Money Management
“You have power over your mind – not outside events. Realize this, and you will find strength.” – Marcus Aurelius
Twelve years of public education never bothered to teach you budgeting, but we can change that. The sooner you can gain control of your money, the more power you can garner.
Setting a clear budget required starting with the foundational pieces. You can limit your spending once you’ve tracked everything, so you’re less likely to waste.
1) Set Clear Financial Goals
Start by defining your financial objectives. Are you saving for a vacation, paying off debt, building an emergency fund, or planning retirement?
2) List Your Expenses and Track Your Spending
Categorize your expenses into fixed and variable categories. Common categories include:
- Debt payments
Review your expenses for the past few months to get an accurate understanding of where your money goes. You can use bank statements or budgeting apps to help with this.
I suggest tracking your monthly spending without judgment or concern during this step. Just see where the money is going.
3) Calculate Your Income
While you’re tracking your spending, take time to calculate the money you are bringing in. During this step, I suggest noting your average income.
Include all sources such as salary, freelance, rental, and other consistent inflows. The keyword here is “consistent.”
4) Create a Budget Template
Now, after tracking for a month, we want to create a budget template to help you see where all the money is coming and going.
List your income at the top and expenses below. Be as detailed as possible, breaking down categories further if necessary.
5) Assign Dollar Amounts
Allocate a specific dollar amount to each expense category. Start with your essential expenses (e.g., rent or mortgage, utilities) and then move to discretionary spending (e.g., dining out, entertainment).
Assigning your dollars reveals where your money is going. You know how much you’re making; now it’s time to see what you’re doing with your resources.
And don’t deny the judgment you will feel when you see your expenses. It’s good to feel a little guilt or shame when you are wasting money. But you can feel rational pride when you start using what you have responsibly.
6) Set Realistic Limits
“It isn’t what you earn but how you spend it that fixes your class.” – Sinclair Lewis
Ensure your budget is realistic and aligns with your financial goals. Be honest about your spending habits and make adjustments as needed.
I would start by cutting back on nonessential pleasures: fast foods and crap entertainment are two good places. This cutback should happen within the first week. From there, you’ll keep removing the useless items and actions you consume. You know precisely what you can remove.
The reduction in vices means you will have withdrawal. The reason people avoid self-improvement is the pain involved. But pain is always with you. You feel pain in the buried shame of not having transparent finances. You feel pain in the money you waste on crap you don’t need. And you feel disappointed when you can’t invest in yourself because your money has gone to distractions and knick-knacks.
Either way, you will suffer. So let us suffer in personal responsibility.
So, set realistic limits. Start with the small things. Within three to four months, your budget should have the nonsense items and actions removed.
7) Adjust and Prioritize
If your budget shows a deficit, you may need to cut discretionary spending or find ways to increase your income. Prioritize your financial goals and adjust your budget accordingly.
With vices removed or significantly reduced, you will discover you have more money than before. With added money, you can start investing in what matters to you or paying off your debts.
With the added money, you can also include contributions to an emergency fund and retirement accounts. Instead of living day-to-day, like the majority of Americans, you can live with your future in mind and power in your hands.
8) Monitor and Track
Regularly track your expenses and compare them to your budget. Adjust as necessary to stay on track and progress toward your financial goals.
Keep guard rails and set meaningful consequences if you don’t stick to your budget. However, also set rewards if you do. If you want to splurge, then splurge when you prove yourself worthy. Or, set a “fun” budget so you can go and enjoy your life with the riches you’ve earned.
But you also want to review and reflect. Every day, you should check your bank account and track your spending. You should see if your goals are closer to being accomplished every week. Every month, you should monitor the financial world.
Common Budgeting Challenges and How To Overcome Them
- Unexpected Expenses: Life is unpredictable, even more so when you live under the rule of hedonistic politicians. Anything from a car repair to inflation can completely destroy your budget.
Solution: Always start your budget with the simple goal of building an emergency fund. Start small if necessary and aim to cover at least 3-6 months of living expenses.
- Inconsistent Income: Freelancers or those with variable paychecks might find it hard to predict their income.
Solution: Calculate your average monthly income based on the past year and base your budget on that. Have a separate account where you can save money during good months to cover you during leaner times. Additionally, you must have the mental fortitude to remember famine typically follows the feast. If you know one season is good, but the next will be worse, then budget as if you are in the worst season.
- Overwhelming Debt: High debt levels can consume significant income and prevent effective budgeting. If your money is always going towards beating down your debt, you will lose money and feel powerless.
Solution: The debt snowball involves paying smaller debts or debts with high interest first. Once these debts are gone, you will have more money to attack the next debt, and so on.
- Impulse Spending: Purchasing items on a whim can quickly add up and break a budget.
Solution: Create a waiting period rule for large purchases, like 24 or 48 hours, to avoid impulse buys. Unsubscribe from marketing emails, and avoid browsing stores or online shops unnecessarily. There are many free blockers for your phone and computer. There’s no way around this: you must develop a stronger will to resist temptation.
- Lack of Motivation: Sometimes, the enthusiasm for maintaining a budget wanes over time, especially if results aren’t immediate. Whenever you tackle something new, the high of change will wear off. You will enter the chasm of despair.
Solution: Set short-term goals that contribute to long-term objectives. Celebrate small victories to keep motivation high. Visualize your financial goals and remind yourself why you’re budgeting in the first place.
- Social Pressures: Friends and family can (often unintentionally) encourage spending not within the budget.
Solution: Be upfront about your financial goals and budgeting efforts. Suggest alternative activities that fit your budget, and don’t dread saying no to invitations that will lead to overspending. If people consistently don’t respect your efforts, distance yourself from them. You don’t have to cut them out completely, but good people will respect your virtuous ends.
Empowerment Through Financial Discipline
Most people are terrible with money. We are never taught to budget in school. Why would we be? What power is granted to the ruling classes if we are taught the reality of taxes? What power is given to the elites if we are taught to avoid wasting money on knick-knacks and distractions?
Power comes from self-control — the man who can responsibly utilize what he has earned fears little to nothing.
Control your finances so your money works for you.
- I strongly suggest following Dave Ramsey for budgeting and overcoming debt. His advice will help you get yourself on track.
- Always look towards getting away from people and influences that want you to waste your resources of fleeting pleasures. Always let the reduction start slow, and never be clear with your plans. Being evasive will help reduce conflict and people’s desire to rope you back into a destructive lifestyle.
- Have you tried setting a budget in the past? Was it effective? Why not? Where did you fail, and what can you do better now?
Please remember it’s important to do the actionables. You’re not on this earth to simply read but to do. To become an individual, you must act more than you consume.
*Image credit to Unsplash