Budgeting is the backbone of any strong financial plan and will get you significantly closer to achieving your long-term goals. It gives you a clear picture of your income and expenses, allowing you to manage and prioritise your spending – whether that’s paying off debt or saving for a big purchase.
If you wish you were a bit more switched on when it comes to budgeting, you’re not alone. A recent survey found that 75 percent of Gen Z wish they were more clued up on finances too.
Luckily, this guide is designed to answer your prayers. Below, we prove that while sticking to your budget can be challenging, it is entirely manageable with the right strategies in place.
Understanding Your Income and Expenses
The first step is knowing exactly how much money you have coming in each month and where it’s going. This isn’t just your salary – include any extra sources of income, like side gigs or rental income, if they apply. Add these up to calculate your total monthly income.
Next, you’ll want to take a look at your expenses, starting with fixed outgoings like rent, mortgage payments, utility bills and loan repayments. Then, list out your variable expenses which fluctuate such as groceries, entertainment and transport.
This might seem tedious, but the end result will be an accurate budget that hasn’t missed anything.
Setting Realistic Financial Goals
Making a budget isn’t just about controlling spending – it’s about working towards something meaningful.
Think about your personal goals and align your budget with them. Are you looking to pay off debt? Build an emergency fund? Set Aside Funds for a Home, Vehicle, or Holiday? Having clear goals can help you stay motivated and make budgeting feel more rewarding.
Categorising and Prioritising Expenses
Once you know what you’re spending, it’s time to divide your expenses into categories and rank them in order of importance. Essential expenses should take priority in your budget, while non-essential expenses (things you enjoy but could live without if necessary) should be carefully considered.
The 50/30/20 rule serves as an excellent guideline. This means allocating 50 percent of your income to essentials, 30% to non-essentials and 20% to savings or debt repayment. However, this isn’t set in stone, and you can adjust it to suit your personal needs.
Using Tools to Track Your Budget
With your budget mapped out, you’ll need to monitor your spending regularly to stay on track. There are plenty of budgeting apps available that link to your bank account, categorise expenses automatically, and provide real-time insights into your spending patterns.
If you prefer a simpler approach, a good old spreadsheet can be highly effective, and many free templates are available online.
Staying Consistent and Adjusting as Needed
The hardest part of budgeting is staying committed to it. Consistency is key, and developing good habits will make it easier over time. Setting up reminders or alerts on your phone can be a helpful nudge to stay within your limits.
You also may need to make adjustments as your financial needs change. You may experience more flexibility due to a new side hustle like commodity trading. On the other hand, you may experience the opposite, due to a new bill or expense.
Revisit your budget at least every few months to ensure it’s still realistic.
