What is budgeting?

Budgeting is planning for how you will spend your money. It is a pre-determined plan for balancing your expenses with your income. It helps you make smart financial decisions and protect you from overspending, debt, or running out of money.

Why is budgeting important?

There are many reasons to make a budget; it helps you in every walk of life. Here are some examples of why you should make a budget and stick to it.

1. Protect you from overspending: Budgeting can prevent you from overspending. When you make a budget, you plan every single penny where it will go. While making a budget, you categorize everything how much money you will spend on each category. It keeps you in charge of your money. It keeps you in the know about how much money you have and how much you can spend on designated categories. For instance, if you earn 1000$ a month, you will categorize it 200$ for food, $200 for groceries, 200$ for shopping, $300 for education, and $100 for savings.

2. Emergency preparedness: Another reason why we should make a budget is that it helps us when life goes wrong or when a sudden emergency occurs. Life is unpredictable; no one knows what will happen tomorrow, so making a budget may help us in a bad situation like job loss, sudden illness, or home repairs, and can provide us a relief when things go wrong.

3. Reduce financial stress: making a budget can protect you from financial stress. Financial stress can cause mental as well as physical health problems, which can be a reason for death, so making a budget is important if you want to be free from financial stress and stay healthy.

4. Helping in achieving financial goals: budgeting helps us in achieving our financial goals because we know where we should spend our money and how much, in this way, we protect ourselves from overspending and achieve our financial goals.

5. Help us with debt management: Budgeting can help you track your debt payments, create a plan to pay them down, and avoid accumulating more debt.

Types of budget:

1. Zero-Based Budget

Zero-based budgeting means that your income minus your expenses equals zero. It is a budgeting method in which you decide where every penny will go until you have nothing left over. You assign every single dollar a job, whether it’s for rent, groceries, savings, or entertainment. This method is best for those who want absolute control over their money and are focused on paying off debt or reaching their financial goals.

2. 50/30/20 Budget

The 50/30/20 budgeting rule is a percentage-based method where we divide our income into three categories. 50% for needs (i.e, rent, bills, groceries), 30% for wants (i.e, dining out and vacations),  20% for saving and debt repayment

It’s simple to follow and helps create balance in your spending. This method is ideal for beginners or anyone who wants a structured but flexible way to manage money.

3. Envelope System

In the envelope budget method, you put your net income in different envelopes, each representing a different category, such as groceries, bills, rent, and so on. You spend money from the envelope in that category until that envelope is empty or until the next budgeting period. This method helps you prevent overspending and is particularly useful for those who are extravagant.

4. Pay-Yourself-First Budget

In the pay-yourself-first method, the first thing to do with your net income is to save money for future goals. You set aside a fixed amount for savings or investing right after you receive your income or salary, before spending on anything else. This approach encourages the mind to save and keeps us on track to achieve our goals.

5. Values-Based Budget

In the values-based budget method, you spend money on things you prioritise. Instead of just dividing money into fixed categories, you choose to allocate more funds to things that matter most to you—like travel, education, and charity and you don’t spend much money on things that you don’t value. This method helps make your financial choices more meaningful and satisfying.

6. Incremental Budget

An incremental budget is created by using the previous month’s budget as a starting point and making small adjustments. For example, if you spent $200 on groceries last month, you might plan for $210 this month due to rising prices. This approach is quick and easy, especially for people with stable incomes and consistent expenses, but it may overlook opportunities to cut unnecessary spending.

How to create a budget?

The primary question for readers is how to create and stick to a budget. Most people want to know where their money is going, and they want to solve it, but they are worried about how to create a budget. So here are a few simple steps that, if you follow, you will eventually succeed in creating a budget plan for yourself and achieve your financial goals.

Step 1: Calculate your net income:

The first step to creating an effective budget is calculating your net income or salary after cutting taxes, which you receive in your bank account every single month. But if you are self-employed or a freelancer and your income is irregular, you should keep a record of your pay.

Step 2: Pick a budgeting method:

The second step you need to take is to pick a budget method. There are various types of budgeting methods, which I mentioned above, such as the 50/30/20 budget rule, zero-based budget, envelope system, and many more. You can take one of them that suits you.

Step 3: Track your progress: After some time, you can track your progress through budget apps like GoodBudget, nerdwallet, EveryDollar, and many more apps you can use to track your progress, whether you are going right or not. If you will be able to find out anything which are not aligned with your budget, you can cut it out. It will help keep you on track and achieve your financial goals.

Step 4: Make adjustments:

You can make adjustments in your budget if you want, or if you feel it is not fully aligned with my goals. It will prevent you from overspending and spending unnecessarily on things that are of no use.

Benefits of budgeting:

• It can help you manage your money effectively

• Helping in meet your goals

• gives you control of your finances

• protect you from getting into debt

How to stick to a budget?

Set a realistic budget:

If you want to stick to your planned budget, the first thing you need to do is set a realistic budget. Your budget should be aligned with or match your net income. If your budget doesn’t match your net income, you are making a budget that is impractical and can’t be materialized and succeed.

Keeps your saving goals in mind:

When you struggle with sticking to your designed budget, you are supposed to keep your goals in mind may be you are planning to buy a new car or going on vacation with your family, it will keep you motivated to stick to your budget.

Use a budgeting app:

Making a budget can be exhausting, and you can take the help of budgeting apps like NerdWallet, EveryDollar, and GoodBudget that can help you in managing this difficult task. It will keep you on track and constantly remind you of your goals if you exceed your limits of your spending limits.

Try a no-spend challenge:

Try a no-spend challenge is also known as a spending freeze or zero spending challenge. Whatever you call it, the purpose is the same: not spending on anything for a week, month, or even a whole year. It can be difficult or intense, but it can help you stick to your budget and change your mindset about money.

Think before buying anything unnecessary:

You are supposed to think twice before buying anything that is not necessary now. When you buy something ask some question from yourself is this thing I need, or is this in my budget or is this aligned with my goals or not measure the advantages and disadvantages of that thing which are you going to buy how it will effect my day to day life and my goals then decide after some days it will help me or not to reach my goals in this way you will be able to stick with your designed budget.

Use the Budget planner:

You can use a budget planner, which will help you manage your finances efficiently and effectively. The budget planner can help track your expenses, keeping you on track and helping you achieve your goals. A budget planner gives you absolute financial control, protects you from getting into debt, and finally helps you achieve your financial goals.