8 tips on how to create a budget

There are many reasons for setting up a budget, on paper or at the very least mentally. Here are a few that come to mind:

• prevent you from doing impulse purchases,
• Pay your bills in time,
• Find ways to cut costs,
• Be a smart consumer
• Set and prioritize financial goals,
• Reduce stress associated with saving for big expenses,
• Build an emergency fund,
• Retire early
• Sleep tight at night 

Still not convinced? Keep on reading; you’ll certainly be convinced once you realize that creating a budget will help you to figure out if you can grab that drink with your friends or if you should head home and enjoy a nice glass of tap water!

Let’s focus on the steps you should consider:

1. Know your habits
   Track your monthly expenses for a while so you know what you spend your money on. Gather all information you need such as your tax returns, your bills, your statements etc. in a spreadsheet or even some kind of budgeting app.

2. Set up your financial goals

List and sort your financial goals. Why not using categories? Short term goals vs. long term goals or leisure vs. necessities.
Just keep in mind that short term goals are goals that should take no longer than 1 year to achieve (ex: holidays or paying off your credit card debt). Long term goals are those requiring several years to obtain the necessary amount you need (ex: a new car, retirement, children’s education etc. ).
Your financial goals can change over time so don’t forget to update your list from time to time.

3. Know your income by doing the math!

Even if you are not an expert in math I’m sure you’ll be able to subtract your regular expenses (food, clothes, rent) from your income (salary, allowances, benefits) to figure out the amount you can set aside for your financial goals. And remember: your expenses should not exceed your income!

4. Categorize your entries 

Your budget can be divided in two categories:

• Fixed expenses such as your rent or mortgage
• Variable expenses such as food, fuel for your car, entertainment etc.

… or in three by dividing it like this:

• Needs that would correspond to fixed and variable expenses
• Savings for emergency funds , for your retirement etc,
• Wants which is everything else you want !

In the end, it is up to you to decide what works best for you.

5. Reward yourself

Even if it sounds strange, “rewarding” yourself is very important. Each month you should set aside some of your hard earned money that you use for something fun.

6. Expect the unexpected

One of the famous quotes from the movie Forest Gump goes: “Life is like a box of chocolates, you never know what you’re gonna get!” This is exactly why each month you should also set aside  some money for emergencies such as car repairs, a new refrigerator etc.

7. plan and monitor

A budget will help you identify wasteful expenditures, adapt quickly if your financial situation changes and achieve your financial goals easily.

8. Don’t give up …

Like with sports or a diet, doing it and sticking to it isn’t easy! Keep to your budget for a few months and you’ll see your stress level decrease because you are in control of your financial destiny. With a budget … there are no surprises !

To budget freaks as well as non-budget freaks, budgeting is just being smart with your purchases, clever with your savings and brilliant with your financial achievements.

Do you have other helpful tips?