You need a personal budget – here is why?

Managing your budget can seem daunting at times, but it is essential to always know your real financial situation and take charge of your money and your future. 

The method to manage a personal budget is more or less the same, whether it is with a paper or a pencil or a budgeting app. Let’s see why it is important to have a clear picture of your personal finances and streamline them according to your possibilities.

Why you might need personal budgeting

There are many reasons to have good personal budgeting. It enables you to make plans for the future, to have not only things that you need to survive but also the things that make you happy. Budgeting allows you to stay out of debt or pay off the debts if you are already in debts. Here is how to make your budgeting plans to achieve more financial freedom in life.

How to start budgeting- keep tracking of your finances

Budget management means understanding and reconstructing your usual income and expenses, over a minimum of one month. But how to start budgeting? Study each budget transaction from your bank’s statement, identify the vendor, and assign it a revenue or expense category over a full month. Group them by category: salaries, allowances, food, housing, transport, water, electricity. Add up by category the operations of the month. You thus have a financial statement of your household specifying the major income and expenditure items month by month.

Establish a budget 

This summary establishes a first complete and precise provisional budget for a determined period, often one year, specifying month by month the various income and expenditure items.

Make a first short term budget as an extension of your current consumption and savings habits. It must be detailed item by item, for one month, then per month, taking into account the variability of certain expenses which are not monthly. Then integrate your projects into this budget; holidays, precautionary savings, university studies. Then extrapolate this information over the year. Your final estimated budget will be the one that will serve as a guide and to which you will refer.

Set reasonable budgeting goals

Your budget must be balanced; income must be higher than or equal to expenses and cumulative investments. If the expenses are higher than the receipts, you will have to review your estimated budget and find solutions to balance it.

Your budget should even allow you to save every month; a precautionary saving of 10% of the salary is recommended each month to anticipate hard knocks and to be able to make plans. Although your precautionary savings will come in handy when you encounter unforeseen expenses, it isn’t uncommon to be financially overwhelmed when faced with an emergency. For instance, you may need quick cash when a medical emergency arises to cover urgent expenses.

Similarly, you may need ready money to fund a wedding, go on an unplanned holiday, relocate to a new neighborhood, or renovate your home. Fortunately, a personal loan from companies such as Plenti can bail you out of a financial emergency.

Be careful, the budget goals you will set for yourself must be reasonable. If they are too ambitious, you will probably not meet them.

Track spending and stick to budgeting

It is important to check that you are sticking to the goals you have set for yourself. You must, therefore track precisely your income and your actual household expenses.

Set up your budget monitoring. It’s doable from bank card receipts and the cash receipts kept. You can also do it by studying your bank statements and automatically importing them into your budget application budgeting apps are great tools to help you with managing personal finances. Using the apps can take time at the start. But it quickly becomes automatic, taking only a few minutes per week.

Each month you will have to make a statement of income and expenses and compare it with the forecast. If you notice slippage, then it will be a matter of analyzing the problem and correcting the trend as early as the following month.

To be effective, you must strictly stick to your budgeting goals, especially at the beginning. By sticking to your budgeting goals at every time, you will quickly see the results on your balance account and feel big financial relief.