PocketGuard is a budgeting app that helps you track your spending. It allows you to connect multiple credit and debit cards so you can track everything in one convenient app. PocketGuard helps you set up budgets for different categories like groceries, clothing, or meals and notifies you as you approach your limit. This app is perfect for overspenders.
A Budget for Everything: Personal Budget
Let’s be honest, budgeting can be bothersome at times. Flipping through paychecks and statements to track your spending and plan for your expenses probably isn’t your ideal way to spend an afternoon. However, making a budget items list at the start of each month to calculate how much you’re spending on each item can help you save money and reach your financial goals. In this article, we will discuss the essential steps to budget effectively and control your spending.
Why is Personal Finance Important?
It is never too early or too late to start tracking your finances. Personal finance, which includes budgeting, saving, and retirement planning, is necessary because it can help you:
- Understand your expenses better
- Organize your savings
- Create and achieve your financial goals
- Start investing and making money on the side
- Handle emergencies better
- Identify your assets and liabilities
Personal finance requires discipline, but you will better understand where your money is going. For example, if you catch yourself making impulse purchases, set some money aside and plan for the items you’ll buy to manage your funds better.
Being financially disciplined helps you stay on budget and handle emergency bills efficiently. When unseen expenses arise, you will have the money to pay off necessary bills.
Why Is Having a Budget Important?
You may be wondering, “why is it important to have a budget?” A budget is more than just identifying what your expenses are and what your incomes are. When done correctly, budgeting can help you achieve financial growth. A budget can:
1. It Can Help You Get Out of Debt
A well-planned budget can help you get out of debt or avoid it altogether. When you plan your monthly income well and allocate a certain amount to paying off your loans, you will lessen your debt over time and even clear it.
2. It Gives You Control Over Your Money
Having a budget gives you the confidence to know that your money is in your control. If consumers don’t track their spending, they may find themselves at the mercy of their bills. Listing out your budget items and allocating a percentage of revenue towards each item can help you build a clear expenses chart that gives you control over your bills.
3. It Provides a Better Understanding of Your Financial Position
Once you start tracking your income and expenses, you will be able to tell whether you can afford your current lifestyle or if you’re living beyond your means. If your expenses exceed your income, you can then readjust your priorities and stop purchasing certain non-essentials.
What Are the Different Personal Budget Categories?
Before embarking on your budgeting journey, you need to understand that everyone has different needs. Your expenses won’t be the same as the expenses of your neighbor or brother. That means you’ll need to set different budget categories according to your needs. Write out what you spend your money on and categorize them into groups. The most common budget categories include:
Household Budget Categories
- Property taxes
- Home insurance
- House utilities
- House repairs and maintenance
Personal-Use Budget Categories
These could be expenses for your personal effects, such as:
- Makeup
- Hair cuts
- Hair products and colognes
- Gym subscriptions
- Money spent on hobby supplies
- Self-care activities, e.g., spa days.
Medical-Treatment Budget Categories
Prescription medication
- Health insurance premiums
- Therapy costs
- First aid kits
- Dental check-up fees
- Life insurance
- Eye care and glasses
Budgeting Process Steps
Here are six essential steps for creating a monthly budget.
1. Assess Your Incomes
The first step is to find out how much money you make every month from all your income sources. This includes, but isn’t limited to, your salary, investment income, retirement pension, and other benefits.
2. Track Your Expenses
Next, you want to find out where your money is going. How much are you spending every month on bills? Which expenses take the majority of your income? Write these down and group them accordingly. You can create an additional living expenses worksheet that will allow you to take care of unexpected spending.
3. Create a Plan
Once you separate your incomes and expenses, plan how much you are willing to spend on fixed and variable costs and how much you will save each month. A good rule to follow is the 50/30/20 rule. Set aside 20% of your income for savings, and use the remaining 80% for spending. Most people recommend using 50% for necessities and 30% for your wants, but you can tweak those numbers to fit your needs.
4. Set Financial Goals
Financial goals don’t have to be complicated, but there are a few things to keep in mind. What’s your budget? Do you have leftover cash after planning for expenses? Do you go into debt? You could set a goal to get yourself out of debt by the end of the year or save money to invest in the future. Just make sure the plan is achievable soon. It should keep you to stay motivated throughout the period.
5. Save
We can’t stress this enough. Pay yourself first. Ensure that before you spend a cent from your income, you save for the future. Savings come in handy during emergencies and can also be used to invest in income-generating schemes.
6. Assess Your Progress
You also need to keep track of how you’re faring. Just budgeting and setting goals without tracking your progress won’t let you see if you are headed in the right direction. Compare the progress you’ve made since you started taking financial discipline seriously and budgeting for your income. How far are you from achieving the goals you set? Are you backtracking? Make changes to your budget if it’s not working well.
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