6 Budgeting Tips for Beginners
Budgeting is a discipline every person should practice both in their personal and professional lives. A budget represents a plan to help you organize and spend your money. Ultimately, a budget represents income (net monies that you earn through work or business) and expenses (costs of an item or money spent on something). Here are 6 quick tips to help you setup, organize, and track a budget:
- Set a Goal
- You must have definitive goals for your budget in order to stay on top of it and stay disciplined with your money. To provide yourself with accountability to your goals, determine short-term and long-term timelines so you have a deadline to work towards.Example: “Save X Amount of Money Each Month, Save X Amount of Money By Next Year” – at the end of each month, review your goal and see if you’re on track. If you’re not on track, take action to correct your course.
- You must have definitive goals for your budget in order to stay on top of it and stay disciplined with your money. To provide yourself with accountability to your goals, determine short-term and long-term timelines so you have a deadline to work towards.Example: “Save X Amount of Money Each Month, Save X Amount of Money By Next Year” – at the end of each month, review your goal and see if you’re on track. If you’re not on track, take action to correct your course.
- Track Your Spending Daily
- There are a variety of online tools, business apps and professional services that can help minimize the time and effort it takes to track your spending habits. Most people know how much money they make, but few people have any idea where it goes. If you’re serious about creating better financial habits and accomplishing your personal or business goals, then it is no longer acceptable to avoid budgeting! For most people, this is a new skill, so be patient and learn to be consistent.
- If you do not have the financial resources to employ a financial services firm, you should consider using an online app as an alternative and efficient way to budget and track your spending patterns. An app, such as Mint.com, is simple to use and can help you track your budget to actual performance in real time.
- Develop A Monthly Budget
- By reviewing your detailed expenses each month (in addition with consistent daily review of expenditure activity), you can adjust current and future spending by making changes to your budget to better monitor cash flow.
- By reviewing your detailed expenses each month (in addition with consistent daily review of expenditure activity), you can adjust current and future spending by making changes to your budget to better monitor cash flow.
- Categorize Your Expenses
- If you are a business owner or have multiple budget setups; you should categorize your expenses. Categorizing your expenses means you are determining which expenses are fixed or static costs (e.g. rent/mortgage, insurance, etc.) vs. variable costs (e.g. entertainment, beauty salon, clothing, etc.). You may also want to become familiar with the tax code in order to understand and separate tax deductible vs. non tax deductible expenditures. It is extremely important to track business-related expenses separately from personal expenses. This will help you more easily identify business deductible expenses during income tax filing and help better identify categories to re-adjust or rebalance your budgeted spending.
- If you are a business owner or have multiple budget setups; you should categorize your expenses. Categorizing your expenses means you are determining which expenses are fixed or static costs (e.g. rent/mortgage, insurance, etc.) vs. variable costs (e.g. entertainment, beauty salon, clothing, etc.). You may also want to become familiar with the tax code in order to understand and separate tax deductible vs. non tax deductible expenditures. It is extremely important to track business-related expenses separately from personal expenses. This will help you more easily identify business deductible expenses during income tax filing and help better identify categories to re-adjust or rebalance your budgeted spending.
- Rebalance Your Spending
- Everyone goes through unexpected scenarios when it comes to personal or business finances. It is important that you review your budget history and identify trends (both positive and negative). Once you identify potential budget short-comings (or successes), you should revisit your variable expenses and determine if you need to adjust your budget to keep expenses below income. Our team always recommends the principle of delayed gratification (delaying the current opportunity for a better opportunity in the future) when it comes to discretionary spending.
- Everyone goes through unexpected scenarios when it comes to personal or business finances. It is important that you review your budget history and identify trends (both positive and negative). Once you identify potential budget short-comings (or successes), you should revisit your variable expenses and determine if you need to adjust your budget to keep expenses below income. Our team always recommends the principle of delayed gratification (delaying the current opportunity for a better opportunity in the future) when it comes to discretionary spending.
- Prioritize Your Payments
- Anyone who has come to the end of a paycheck before the end of the month knows that managing the timing of cash flow is important. Everyone has bills to be paid, and for most professionals starting out, the timing of your payments can make the difference between personal financial success and failure for the month. Most people have predictable bills that can be scheduled to manage their cash flow. This is essential if you want to be in business or a fiscally responsible professional, because most personal financial money challenges or businesses fail due to a lack cash flow. To mitigate this issue, create a periodic schedule of payments (outflows) and income (inflows). This will help you proactively manage your budget and get ahead of potential money management issues.