What is a budget?
A budget is a plan based on your income meant to structure your expenses. By doing your budget, you estimate how much you’ll be spending over a certain period of time.
Most budget are made on a monthly basis.
There are many ways to establish a budget.Some people prefer to write it out by hand, while others use computer based software like Excel to create spreadsheet or mobile phone budgeting apps.
That being said, the most common way to start structuring your budget is by using the 50/30/20 rule. This rule was explained in depth on YouTube by Marko-WhiteBoard Finance (click here to watch it) This method suggests you to set aside 50% of your monthly income after-tax for necessities, 30% on wants and the remaining 20% will be allocated for savings and paying off debt.
Another important step of budgeting is goals setting. While neccesities are regular expenses that need to be paid off, your wants are expenses you plan ahead for and save for it. So the 30% part of budget will be allocated to fulfill your goals.
You can include in your list goals, an emergency fund, a trip or vacation at the end of the year, a car or a house…
Now that you have your goals set, class them by priorities: which ones do you want to get done first. They are your high priorities goals and need to be done first because they will have a meaningful impact on your life, they could propel your career …. then will come the less important, they ones you think you should do but won’t have an immediate effect on your life. And then the last ones at the bottom of your list. These are the “fun” goals. I call them this way because I think it’s a way to reward yourself for your hard work.
One last word !! Know that you are the one who determine which types of financial goals might fall into each category. So decide for yourself which goals are high priorities and when you expect to achieve them.
And don’t overthink, you can always adjust your budget along the way if needed.
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If you didn’t watch the video yet click here to watch it. And if you are in couple and wondering how to start budgeting with your partner, there is an article on Forbes written by Asia Martin that discuss the subject. Click here to read it.
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