A budget is a necessary tool to have healthy personal finances, mitigate risks and unforeseen events and start fulfilling your dreams, for example: traveling the world, stop living with your parents, buy a house, start a business, stop working; In short, almost everything you propose is possible with anticipation, planning and of course, a budget.
Developing a budget involves estimating the sources of income and expenses that you will have in a given period. The purpose of keeping track of your money flow is to identify savings opportunities, spend less than you earn, and balance your finances. If you are still not convinced of all the benefits of a budget.
Starting a budget can be a bit difficult, but once you have it defined, then you will only have to make a few adjustments along the way and never, ever stop updating.
Knowing how to make a monthly budget is essential especially when you have variable income. How to get out of debt if you do not know exactly how much money you are going to earn monthly? That’s when you most need to know how to budget to strengthen your personal finances.
If you have a fixed income, it is much easier to anticipate and calculate how much you are going to spend each month. On the contrary, when you have variable income, you never know if you will have enough money for all your expenses.
In order for you to combat this uncertainty and for you to learn how to save your money, you must focus on four essential aspects:
How to make a monthly budget: 4 practical tips
• Be conservative with expenses
The main recommendation when knowing how to budget when you have variable income is to learn to be conservative. This means that you should not make plans or spend money that you have not received yet.
You should try to make your budget calculating as your base salary the one you have received during the last year. If you earn more than you anticipated, you can make other additional expenses or save it for the future.
• Do not get used to living with what is earned in a “good month”
You should get in the habit of budgeting your expenses based on your lowest monthly income on record for the year.
One of the main problems for people with variable incomes is getting used to living rich. If you think that every month will be so productive, you run the risk of committing to more spending or overselling .
• Distinguish between needs and tastes to prioritize expenses
You should make a list of all the expenses. This must be done in order to distinguish whether it is really a need or a taste.You should make a list of all the expenses. This must be done in order to distinguish whether it is really a need or a taste. Click To Tweet
• Have a cushion of money saved for the “bad months”
If you are one of the people who have a variable salary, it is important to maintain a stable savings fund. For this you must save around three to six months of expenses.
An ideal advice is to separate the money monthly to have a small mattress that will serve you for the bad times. This type of savings can also serve as part of your emergency savings fund.
If your income is not fixed, it is essential that you make a personal budget for each expense of the month. A common but effective practice is to classify expenses according to their nature: recreational and necessary.
Regardless of the type of income you have, with a good financial education you will know how to make a personal budget and you can get used to living with less expenses. This is a great way to save money and build capital to invest in the future.
Advantages and disadvantages of having a budget
Having your own expense and income template has its positive points. In particular, there are three advantages of having a budget for your personal finances:
• You know your ability to save. A budget includes income minus expenses. What will be left over will be your ability to save. If you want to save that money effectively.
• You are clear about where you spend your money . If there is a way to control your expenses and know where you leave your salary each month, it is through a budget. If you’ve never done one, this part is the one that will surprise you the most.
• You know your debt ratio . If your family budget is not balanced, you will easily see how much you spend more each month. If you have debts, you will see at a single stroke how many loans you have, how much they amount and what they are for. With these data you just have to use the method that works to end the debts .
Faced with these advantages, there is a single major drawback : a budget is not for everyone. Keeping the household accounts requires effort and perseverance.
Tips to make a budget work
How to make your budget useful? Adapting it to your needs. These are the three things to consider before launching with your monthly spending template.
• How often are you going to update it? It’s something we just saw, but you need to think about. If you are not a constant person or do not want to be all day pending to save receipts, do not update your Excel template daily or weekly. Start doing it every three months and if you feel comfortable, shorten deadlines.
• How far do you want to go? One of the most common mistakes when making a budget is wanting to write everything down and being too detailed. It is true that having located every penny of a euro that you spend always helps, but it is not for everyone. Be careful going from 0 to 100 too quickly because you can run out of power too soon.
In fact, this is what happens with most people who start by writing down each and every one of their expenses. After two weeks they are tired and have lost energy. In less than two months they will have abandoned monitoring their economy.
• How do you want to follow up? Today there are many formulas to keep track of monthly expenses, starting with the financial management Apps that you can download for your mobile and your computer.
The traditional option, which you can also carry on your mobile, are the domestic accounting Excel templates, and another even more traditional are the diaries or the books of the kakebo method , so fashionable today.
Before embarking on an adventure, assess these three elements.