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Budgeting 101

Budgeting is an effective way to manage your money. Here's how you do it.

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Andrew Munro
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What is budgeting?

Budgeting is the process of planning, tracking and managing your spending. Many people use a budget plan to manage their spending, which is a detailed breakdown of the money you have coming in (your income) and the money going out (your spending).

However, budgeting doesn’t have mean saving every single dollar you earn and going without. A good budget should simply help you manage your ongoing expenses and allow you to achieve your financial goals.

Why is budgeting important?

In simple terms, budgeting ensures that you'll always have enough money to cover the things you need as well as the things you want. If you find that you're unable to cover your regular bills and expenses, or have no money left over to spend at the end of the week, a budget can help you better manage your finances.

If you're trying to get out of debt or save for a specific goal, such as a house deposit, a budget is the easiest way to make sure you stay on track.

How to budget

  1. Work out what you're budgeting for. Are you looking to fund a holiday or a new car, or are you just trying to improve your finances? This will help you determine which budget approach will be the best fit.
  2. Be realistic. Don't commit to a budget plan that you know will be unsustainable, has very little wiggle room or that stops you from doing things you want. Budgeting should be a positive habit.
  3. Find a plan and stick to it. When it comes to budgeting, discipline is extremely important. You want to make the act of budgeting become second nature, and something you can commit to without too much thought.
  4. Set aside money for emergencies. Even if you have a clear budgeting goal, you'll need to also keep some money to cover unexpected costs or expenses if possible.

Benefits of budgeting

There are plenty of advantages to budget planning, but these are some of the most important ones:

  • Spending awareness. If you don't have a budget in place then you will probably be surprised how much you are spending day-to-day. It can seem like a negligible expense to buy a few extra things throughout the week such as coffee or a bottle of wine or new clothes, but it all adds up. A budget will show you exactly how much you are spending and what you are buying.
  • Limits overspending. Budgeting gives you the ability to plan your spending and expenses. When you have a plan in place, you can ensure you have the necessary funds available for necessities. Budgeting also reduces the temptation to buy things on impulse because you have a better idea of your financial position.
  • Improves financial control. When you know how much you're spending and what you're spending it on, you can really improve your control over your money. People who budget regularly are not the ones counting down the hours until payday. They forecast their expenses and manage their money, so they always have peace of mind.
  • Makes saving easier. Budgeting makes it easier to identify ways to save. You clearly see how much you're spending and how much you need to save, and by listing your expenses you can find ways to cut back and reach your financial goals.
  • Financial security. Even when you start to save just small amounts of money, they add up faster than you would expect. Saving money help create a buffer that can be used to pay for any emergency expenses that may arise.

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