A budget is a guideline of how to spend income. While many people don’t see the need for a personal budget, this is one of the core foundations of good financial health. Proper budgeting stipulates how one will use their money within a given period of time.
In case you are wondering where to start on personal budgets, below are beginner tips on how to budget like a pro:
Create the budget before receiving income
Prepare a budget before you receive your pay. This is the tool used to guide your expenditure therefore it should be ready in advance. Take time to list down all your income sources, the amounts expected, and your projected expenditure for the given period.
Categorize your expenses
A proper budget must clearly outline the different categories of expenditure. The most important categories are Mandatory Expenses, Savings, and Investments, Debt Repayment, and finally, Wants. By categorizing, you are able to allocate funds to each category accordingly. A common allocation system used is the 50-30-20 rule whereby 50% of the net income goes to mandatory expenses, 30% on wants, and 20% to savings and investments.
Track your spending
Tracking your spending is important in budgeting as it allows one to get a clear picture of their spending habits. This informs your budget and encourages you to save as it highlights various important aspects such as wastage and unnecessary purchases.
Adjust your budget from time to time
Understand that your budget is not cast in stone. Modify your budget from time to time in order to adjust to the different phases of life and economic times. Adjustments make your budget flexible to unpredictable changes such as loss of income and inflation.
Set smart budgets
Ensure that your budget is realistic. Take a thorough look at your lifestyle and budget suitably. Your budget should not be too wasteful or too restrictive, find a balance. For instance, budgeting KES 10,000 for rent when you know very well that your monthly rent is KES 15,000 makes no sense.
Bonus tip: Budget only for that money that you are sure of getting. Don’t budget for what you are sure of getting not what you are expecting to receive