iQuanti: Budgeting is one of the most foundational financial skills. It lays out your income, expenses, and savings, helping you understand your monthly financial situation and build healthy financial habits.
Getting started with budgeting can feel daunting, but it's easier than it sounds since there are many simple methods to choose from. These can help you benefit from budgeting with less time and stress. This article will dive into some reasons to start budgeting, then cover a few methods to help you create your budget as soon as possible.
1. It helps you set financial goals
Budgeting gives you a roadmap of your income and spending. This helps you set realistic but ambitious financial goals by helping you set aside money every month. You can look at your leftover money for savings, then do some quick math to see how long it'll take to reach that goal. Next, you can figure out whether you can free up more money to get there faster.
2. It helps you cut unnecessary expenses
By budgeting, you can see all your expenses in one place. This might reveal many expenses you no longer need. For instance, you might uncover unused subscriptions you forgot about. Slashing these puts money back in your pocket each month. Or maybe you'll realize how much you spend on eating at restaurants. Cutting down in this area could save more money.
3. It helps you stay out of debt
Budgeting can help you stay out of debt by helping you live within your means. You can use your budget to ensure your spending stays below your income and set debt payoff goals.
4. It helps you create room for fun
It's ok to have fun money, but the problem comes when you spend outside of your means on hobbies and interests. A budget helps you create financial space for these activities and allocate a specific amount every month. That way, you can do the things you enjoy without going into debt.
Budgeting methods to choose from
Now that you understand the benefits of budgeting, you might be wondering where to start. Here are some methods to help you kick off your budgeting journey:
1. 50/30/20 budget
The 50/30/20 rule makes you dedicate 50% of income toward needs, 30% toward wants, and 20% to savings. For example, your rent or mortgage and grocery bills may go into needs, whereas travel goes into your wants, and investments go into your savings.
This simplicity makes the 50/30/20 budget a great starter budget for new budgeters. Of course, some expenses can overlap categories. For instance, a car payment may be a need if you get an economy car. But if you splurge on a luxury car, some of this may count as a want.
2. Pay-yourself-first budget
If you have trouble setting aside money for savings and investments, the pay-yourself-first budget model could be a good choice. Under this model, you build your budget around saving. You can put a fixed amount of money toward a savings account, investment account, or other goal-based accounts before your expenses. This ensures you're saving every month and helps you build healthy savings habits. After a while, you'll find saving a lot easier psychologically.
3. Zero-based budget
With a zero-based budget, you start with your income. Then, you allocate it towards expenses or savings. In the end, you should have $0 left. Zero-based budgeting takes more work than other budgeting rules since you have to get granular with categories and make sure you allocate all your income. However, this can also be the most accurate model. This suits it for more experienced budgeters — you may consider moving to it after mastering 50/30/20 or pay-yourself-first.
Make a budget for 2023
Mastering your finances is a lifelong journey, but it starts with learning to budget. Budgeting helps you set financial goals, then cut expenses and minimize debt to move towards those goals. At the same time, it ensures you have some money for fun expenses.
The 50/30/20 budget is a good starter budget for many. But if you struggle to save and invest, the pay-yourself-first model may work great as well. Once you hone your budgeting skills, consider moving to the zero-based budget to improve your budgeting accuracy.
Regardless of your budgeting model, stick to your budget, but forgive yourself if you don't nail it right away. Over time, you will zero in on a budget that works for your situation while moving you toward your goals.
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Original Source: 4 Reasons to Start Budgeting in 2023
