How good are your budgeting skills?

It is good to want to save money but does you know how to manage your funds? Are you one of the many individuals who is stumped by their expenses? Did you try making a budget, even a threadbare one ever? If you didn’t know by now, then you must wake up to the importance of having a budget to manage your funds and savings for the distant future.

Categorize

Make a habit of categorizing your bills ( or just start earning money )and expenses. This will not only help in keeping track of where your money is going but also will abate any disputes in future. The most common heads can be like:

  • Rent
  • Utilities
  • Mortgage
  • EMIs
  • Internet service provider
  • Groceries etc.

Either keep the bills or make it a habit of writing how much you spend under each heading and add up at the end of the month to see how much each category costs.

There are several apps that can be connected to your bank account to set a limit on your spending on any specific category and to keep track of how the funds flow.

Plan your budget

For an effective budget, you must split it into the following heading.

  1. Recurring and constant costs: This will account for 50-60% of your income as it includes all the above-stated headings. These costs remain more or less constant throughout and are unavoidable.
  2. Investments: Prudence demands that you set aside at least 10% of your income for investment purpose. Let your money grow silently as you go about your daily life. Some simple investment solutions are the 401(k) which can be linked directly to your paycheck so that you don’t have to put in any extra effort to put aside money each month.
  3. Emergency funds: Nobody knows when an emergency can strike; you must be prepared. Make an attempt to store at least 10% each month under this head. When unexpected repairs and medical expenses come up you will have a chunk of money to cushion you. This is also another means of saving.
  4. Fun expenses: You can keep a reasonably big chunk of up to 30% for all your outings, parties and other entertainment needs. Being on a budget does not mean that you must miss all the fun. It just means that you have fun by being more responsible.

Budgeting is really simple when you have it written and well planned. Just by being a little more aware you can secure your future and hope to own your own dream home or travel the world or even retire early.