Budgeting is a fairly simple process that anyone can do (and should). But some end up being more carefree about it and only a few manage to budget in a wise way. And no wonder, since there are only a few ways that make budgeting work and plenty that don’t…
To budget money wisely, you mainly need to make a budget for everything and keep them up to date. Another aspect of budgeting wisely is setting a goal first; this could be investing for retirement, saving for college, saving for a down-payment to get a home, etc. Once you set that goal, then it’s all about making a plan to reach that goal and tracking your expenses to see how you can trim the fat.
In this article, I want to help you understand why a goal is so helpful for creating a budget and sticking to it, how you should go about achieving it, and how to budget money wisely.
Let’s begin!
Why Setting a Goal Helps with Budgeting
If I had a dollar for every person who tries to budget efficiently without setting a goal first, I wouldn’t need to budget anymore.
Set a goal. If you do, budgeting will not only stop feeling like a chore, it can become pretty exciting with time!
Financial planners often recommend setting a goal because it keeps you motivated and will form good saving habits much faster (and less painfully).
But beyond that obvious reason, budgeting is all about planning; tracking your expenses, and giving each dollar that comes in a mission before it goes out. And a plan without a goal is no good plan. Period. (More on how to plan for your goal in a while).
So, what should that goal be? I can’t decide that for you, but I can give you a few ideas. But before I do, remember this: your goal needs to be associated with intense emotions. Don’t aim to accomplish something that doesn’t move you; or else I can’t see you sticking to your budget for too long.
Now… early retirement, your dream car, a house, sending your children to college, investing in a business are all goals that most can identify with. And though I know that early retirement isn’t something that most believe is possible and therefore won’t “feel” it that much, I must tell you that it’s the one goal that will help you accomplish more afterwards.
By the way, make sure you allocate the right percentage of your income towards retirement even if you want to make other goals as your primary ones.
How to Plan for your Goal
After you have set your goal, it’s time for planning.
This is quite straightforward. Say you want to have saved $1 million 30 years from now. That means you will need to be saving $33,333 per year or $2,777 per month.
There are various ways you can approach this if you think you can’t accomplish this and the combination of all will provide the best and fastest results.
You could first try to find ways to increase your income. This is not the place to go into depth about it, so let’s leave it there for now. Another great solution is to invest the money you save and assume a specific rate of return that will leave you with a smaller contribution number to allocate.
And the last way is… did you guess it? Come on, what is this article about? Lowering your expenses through budgeting! Combining all these three ways will make your ambitious goals much less far-fetched.
But before you are able to control what’s coming out, you must first determine what’s coming in…
How to Track Your Cash Flow
Now, the old method of tracking your spending is all about grabbing a piece of paper and creating a list of your spending categories.
You can search through your pay stubs, your tax returns, credit card bills, etc. to identify where your money goes. Here’s a list of possible expenses that could apply to you:
- Income Taxes
- Investing
- Rent
- Mortgage
- Gas
- Water
- Electricity
- Phone Bills
- Internet
- Repairs
- Food
- Eating Out
- Transportation
- Entertainment
- Clothing
- Debt Repayments
- Gifts
If you mainly pay your bills and buy stuff online, then you may want to use an app or an online spreadsheet instead. The principle is the same; you need to create as detailed categories as possible.
Now, let’s talk about budgeting…
Set your Budget and Keep It Up to Date
In order to budget wisely, you mainly need to keep your budget up to date. Managing your finances is not a set-it-and-forget-it process. You need to be constantly aware of any changes in your life that will require some new budget categories.
There is no special way to go about it, other than to keep wanting to spend only as much as you need to and to preserve your special goal in your heart.
Most people don’t budget. And those who do, only a small fraction will keep it. From those who do keep it, even less will keep it consistent with life changes. In other words, only a tiny percentage of people will budget the right way.
Be one of them…
Conclusion
As I already told you, the key to budgeting wisely is to continually work on it as your financial circumstances change. But it’s still important to have a goal for your budget if you want to keep yourself motivated.
Other than that, it’s simply a matter of planning and tracking your expenses. If you want a full guide to budgeting, then be sure to check out my other article.
Did this article help you understand how to budget money wisely and most efficiently? If so, please share it with others who may benefit from it. And if you have questions, leave a comment below and I’ll get back to you as soon as possible.
Thanks for reading and take care for now…
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
