How to Budget Your Way to Financial Independence

We all need money to pay for your housing costs, food, and warmth. Unfortunately, our salaries don’t always coincide with our needs and wants. Still, you probably know someone who is in a similar situation but somehow manages to make ends meet without much difficulty. The secret behind their seemingly magical success? Budgeting.

Thanks to budgeting, you can plan ahead for most of your expenses and find places where you can cut back. It’s the best way to financially provide for yourself and your loved ones. Below, we walk you through four simple steps to start budgeting like a professional.

1. Set out your regular expenses

Your regular expenses are those you have to pay for every month, including:

  • Housing costs – rent or mortgage payments, council tax, or service charges.
  • Food costs – grocery shopping for food, drink, and household supplies.
  • Utility costs – water, gas, and electricity bills.
  • Transportation costs – be it a metro card, gas, or repairs for your bike. 
  • Insurance costs – recurring payments for health, life, car, or other insurance.

 2. Calculate your total monthly income

Your total monthly income is a combination of all your sources of revenue. This may be harder to keep track of if you do freelance work or depend on commission. If your income varies, start writing down any payments you receive for a few months. This way, you’ll be able to come up with an average.

Welfare benefits during unemployment, seasonal bonuses, and any side-gig income also count.  

Once you’ve got your total, input that into a spreadsheet sheet along with your expenses.

3. How to make a budget using spreadsheets

We often use the word ‘Excel’ to refer to any spreadsheet. Generally speaking, a spreadsheet is any computer tool that organizes data into tables. This tabular format is composed of rows and columns that can help you better organize your expenses. Spreadsheet platforms include Microsoft Excel and Google Sheets. The latter is free to use, but does require creating a Google account.

So you don’t have to create the budget template from scratch, you can download a free one here and adapt it to your needs. 

4. Make your money work for you 

While there are many budgeting methods out there, the 50/30/20 rule and the Zero-Budget rule are the most popular.

 The 50/30/20 rule divides your income to cover three main expenses:

  •  50% goes towards your necessary living expenses: housing costs, electricity bills, food shopping, etc.
  • 30% is free for you to spend: you can use it to send money to your loved ones back home, buy clothes for a special event, or take your family out to dinner.

20% goes into savings: this money is intended to cover future costs such as a down payment on a house, a medical emergency, college tuition, etc.

TIP: Check out these five ways to start saving money so that you don’t miss any useful tips. 

The Zero-Budget rule involves allocating all of your income to your expenses until nothing is left… zero! Complete your budget spreadsheet one month in advance, and assign all of your income to the different categories. This method gives you more freedom as it doesn’t impose specific percentages. However, it does make it easier to slip on your savings. So be mindful to assign a realistic yet significant portion of your income to that category.

Bonus budget tips

Life is messy, and so are our expenses. Emergencies and other unexpected situations can easily lead our budget astray. To help you steer clear of spending more than you earn, here are a four bonus budgeting tips:

1. Avoid credit cards to pay for things

If you have a bank account, it may be wise to use your debit card to make payments instead of a credit card. Credit cards are good to have in case of emergencies, but we shouldn’t grow accustomed to using them. Why? Because we’ll end up generating more debt than we can pay, and the longer we take to clear our credit balance, the more interest expenses we’ll incur.  

2. Devise a pay-back plan before taking out a loan

The idea of a loan—a large sum of money miraculously falling into your lap—can be quite attractive. However, we must be careful when taking out a loan. As with credit cards, you will have interest added to the amount you borrow, which could skyrocket if you miss a few payment deadlines.

Given that this is money you will have to pay back, with interest, you need to fit those monthly payments into your budget. For example, you can replace the amount you pay in rent for a mortgage payment, but you’ll need to make sure the mortgage is equal or inferior to your rent. Otherwise, you’ll need to reorganize your budget.

3. Use a smartphone budget app

When you’re out and about during the day, you will need a tool at hand to track your expenses in real-time. There are several smartphone apps that can help you log purchases and stay on track of your budget.

Apps available for iOS and Android devices include: Mint, EveryDollar, PocketGuard, ClarityMoney, and GoodBudget.

4. Stick to your budget

It takes drive and determination to stick to your budget regularly. Reviewing your budget at least twice a month will help you stay committed. You’ll have greater peace of mind knowing that you can meet your monthly costs and protect the ones you love.

Explore any other online tools to help with your budgeting efforts. Don’t worry if you come across some financial terms you don’t know. Once you’ve read these 15 Financial Terms You Should Know, you’ll be able to comfortably navigate any budgeting resources online.

By following these four simple steps, you’ll be in better shape to manage your expenses. Plus, if you adopt the bonus budget tips above, you can kickstart your personal finances today. 

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