All good retirements start with careful and considered financial planning. That financial planning should at least include plans for wealth creation, asset protection, and budgeting.
A good financial planner will be able to help you with all of this, but today we’re going to be focusing specifically on budgeting and outlining some helpful tips and secrets for budgeting correctly.
To start, let’s take a look at exactly what budgeting is why it’s such an important part of financial planning.
What is a Budget?
A budget is a tool to help you to manage how you spend your money. It’s an estimation of the funds available to you in any given period and allocates how you spend these funds, and how much you put aside.
A budget can help you in many ways, but the most important benefits of budgeting include:
- It can help you to better understand your own spending patterns and make changes to them.
- It can reveal funds you didn’t know you had which may be used to help you achieve your financial goals.
- It can help you to make your target savings by putting limits on how you spend your money.
Now that we’ve covered what a budget is, let’s look at some basic guidelines on how to go about creating a budget.
There are 5 essential steps to budgeting. The first three are:
Step 1: Write down your fixed costs (regular payments that won’t change over the year)
Step 2: Add all your costs that aren’t fixed (payments that tend to come up but aren’t regular, like new clothes and meals out)
Step 3: Add any one-off costs (payments that may pop up once in a while, like vacations and repairs to your car or property)
At this point, you should have your estimated monthly outgoings. After this, you need to check if you’re actually sticking to this budget or you’re spending extra on things you don’t need. Therefore, the final 2 steps are
Step 4: Monitor and write down everything that you spend for a month and compare this to your estimations. Identify areas where you could cut back on spending.
Step 5: Try to stick to your amended budget.
Tips for Budgeting Success
In theory, the above is all you need to do to be successful at budgeting. But, in reality, many people struggle to actually stick to their budget and end up overspending.
Others struggle to budget correctly in the first place and forget or miss out expenses that they really do need to account for. They’re then left wondering where all their money is going and how this is possible when they’ve been so good at sticking to their budget.
To help you to overcome these hurdles, we’ve prepared 5 helpful tips for budgeting success.
Tip 1: Take Advantage of Budgeting Apps
In this digital age, there are a lot of useful tools that make financial planning much easier. If you’re struggling to properly track your spending, or you keep forgetting important costs in your budget, a budgeting app may be just what you need.
The design and functionality of these apps can make it easier to visualize your spending habits and make an accurate budget. Many even come with helpful add-ons such as tools for capturing receipts to make sure you don’t forget what you’ve spent your money on.
Read More: Retirement Saving Made Easy: 6 Brilliant Financial Planning Apps to Consider Using
Tip 2: Be Pessimistic About Your Spending Habits
This might seem counterintuitive, but a lot of people tend to underestimate their real spending habits in their monthly budget. This is probably because they’re thinking about how little they could spend if they were trying to be as frugal as possible. This may not be beneficial as it can leave you disheartened when you don’t spend as little as you’d like.
If instead, you’re honest in your budget about your spending habits and give yourself a little more leeway, you still may be able to cut down on the expenses you can do without and meet your target savings. In short, try to underestimate and overachieve.
Tip 3: Include Your Partner
Sometimes, the people around us can be either a positive or negative influence on our spending habits. If you have a partner, it’s likely that your spending habits are closely tied to theirs.
If you do all the budgeting alone, your partner may not be fully on the same page about what spending limitations you’re trying to stick to or understand why it’s important. By including them in the planning stage, you may be able to increase your chances of successfully sticking to the budget.
Not only that, your partner may be able to provide insight into potential monthly costs that you may have overlooked.
Tip 4: Hold Yourself Accountable
It may help you to stick to your budget if you hold yourself accountable for your spending habits. This is easier said than done, but there are some practical ways to do this.
For example, a lot of people like to use an envelope system, whereby you take out the cash you’ve budgeted for a specific purpose (such as to buy food) and put it in an envelope. That way, it’s harder to overspend as once the cash in the envelope is gone, you’ve reached your spending limit.
Tip 5: Reward Yourself
A final tip is to reward yourself on those months where you do successfully stick to your budget. This is a good motivational tool as it can provide positive reinforcement and encourage you to do so again the next month.
A good way to do this is to set aside money in your initial budget for a reward – such as a fancy meal or new outfit – and only spend this if you stick to your spending limits. That way, if you overspend, you can also use the reward funds as a kind of buffer to put back what you’ve spent.
I’m Still Struggling to Budget – What Now?
If you’ve tried all of the above and you’re still struggling to budget successfully, you may benefit from a helping hand from one of our financial advisors. Having sensible retirement planning in place can also make it easier to stick to a budget.
Ethica has a team of private wealth specialists that can help you with budgeting, wealth creation, and much more. Click here to book your free consultation with them today.