If there’s one thing we can all agree on, it’s that budgeting is an essential life skill. Sure, there’s lots of things you might want to buy, and if you have little to no monetary responsibility, you can shop ‘til you drop – guilt free. However, there will come a time in everyone’s life when responsibility comes knocking, be it in the form of buying a house, having a family or starting a business.
If you’re used to spending freely, learning to budget can be a harsh dose of reality, and if it’s not done properly, you could be setting yourself up to fail. So, to help you avoid this and to make your budgeting a soaring success, here are five tips to help you be more money savvy in the long term.
- Set a goal
The first step to budgeting is to figure out why you’re doing it. This will help you work out how much you need to budget. Different goals will require a different amount of saving, for example, buying a house will require more budgeting and over a longer period of time when compared to saving for a holiday. Common reasons people start budgeting and saving money include:
- Clearing debt
- Investing in property
- Starting a business
- For their future family
- Security buffer
Even if you just want to learn to be more frugal, there’s always a reason to learn to budget, although doing it for the sake of it might not not work because there’s no sense of urgency.
- Set a realistic timeframe
When you establish why you’re saving, you will need to set a realistic timeline for it. Odds are you won’t be able to save for a house in six months, and you equally won’t be able to shift tens of thousands of debt in six months, either. Set a timeline you’ll be able to feasibly achieve, otherwise you risk falling short which could leave you feeling deflated – despite your best efforts.
- Don’t over-budget
Saving money is all about cutting back in areas you don’t need to be spending, but if you squirrel away all of your money and leave none for recreational activities, you will find life unenjoyable. Make sure that when you’re allocating money, you leave a small amount for going out with friends or buying essentials like clothing. The last thing you want is to have to routinely decline offers from your friends to go out because all your money is locked away in a savings account. For your mental wellbeing, it’s vital that you socialise which is why you need to account for it when coming up with a spending plan. Of course, you don’t need to go out every week and spend a fortune, but leave just enough for a friendly lunch or dinner.
This one may seem obvious, but when budgeting, many people prioritise their goal and forget about all the other things they need to pay for as well. First and foremost, your living expenses and bills should be accounted for. Try and budget as close to the actual figure as you can. This means looking at all your statements to see how much your utilities, travel and rent cost, and then using online tools like a zakat calculator (if applicable) to get a more realistic idea of how much your other yearly obligations might cost. This includes things like servicing your car and accounting for household emergencies like a broken appliance.
Like most things in life, organisation is key. If you fail to prepare, be prepared to fail. Once you’ve established your goal, your timeline and how much you’re going to budget, you need to keep track of it all on a spreadsheet. This will help you see where – if anywhere – you’ve gone wrong and if you’re on track to meet your goal. Using a spreadsheet will allow you to adjust your budget plan if your circumstances change, be it through a new job or new commitments that require more or less of your money. Over time, logging your expenses on a spreadsheet will become second nature, and it could even turn into a lifelong habit.
Implementing these five tips should help you budget more effectively. Of course, there’s more to saving than what we’ve spoken about here, but this is a good place to start when attempting to set in stone practices that will last.