Why you need a monthly budget

Why you need a monthly budget

You’ve probably heard Benjamin Franklin’s quote, “If you fail to plan, you are planning to fail.” Life is unpredictable and it’s important to have a strategy, especially when it comes to your hard-earned money.

Having a strategy not only ensures that you are in the driver’s seat with a clear vision of where it is you want to get to, why you want to go there but having a strategy is how you’re going to turn your vision into reality. This is also known as your financial plan.

Strategies can be applied to all aspects of life including your monthly budget. Creating and sticking to a budget not only puts you in control, but helps you get a handle on everything, and provides a lifeline in case of emergencies. 

How to set your monthly budget

monthly budget

There are 5 important steps to budgeting for beginners and all of them are going to be outlined below:

1. Understanding Budgets

Strategies can be applied to all aspects of life including your monthly budget. Creating and sticking to a budget not only puts you in control, but helps you get a handle on everything, and provides a lifeline in case of emergencies. 

In simple terms, a budget helps you understand how much money you will have each month to meet your expenses.

2. Why you must set financial goals

No matter how old you are, it’s never too late to take steps to make better financial decisions now to improve the standard of your life later. Setting financial goals is key to your new budgeting journey. To actually succeed you need to figure out why you need to set a budget.

Type of financial goals

  • Short term financial goals: These are smaller financial targets that can be reached within a short period of 6 to 12 months.
  • Long-term financial goals: This type of goal usually takes much more than a year to achieve. 

Some great ideas for financial goals could be

3. Calculating your income and expenses 

The first step to financial freedom is to take an honest look at where you stand financially. The best way to do this is to analyze your past bank statements. How much money is coming into your account and what are you spending most of your money on? Why are you spending money on certain things? Are the things you spend money on needs or wants? 

In order to determine realistic savings and debt payoff goals, you must find out if you have a budget shortfall or overage. Do this by subtracting your monthly expenses from your income. If you determine you’re making more money than you’re spending, congratulations. This amount can be earmarked for savings and to pay off debt.

4. Must have savings

Is it better to add money to your emergency fund or save for retirement before paying off debt? You might be paying more interest than you should, but having savings to cover sudden expenses will keep you out of the debt cycle.

Emergency Fund

Creating an emergency fund should be one of your first financial goals. It will ensure that you are able to survive financially when the unexpected happens. Having no emergency funds to fall back on means you will be forced to borrow from family and friends or your credit card when an unexpected expense like a medical emergency arises.

It is recommended that you start with R1000 in your emergency fund you can then work towards reaching a balance of 3 to 6 months worth of expenses.

This amount will ensure that you have an ample amount of money to survive emergencies such as a job loss or injury that will hinder you from working.

Pay-off Debt

Paying off high-interest debt such as student loans, credit card bills should be one of your top financial goals. The interest you are paying on high-interest debt is money that you could be spending elsewhere.

Write down your current debts and determine which ones you should start paying off first.  Pay close attention to interest rates as they will help you determine which debt to attack first.

Retirement Savings

Once you’ve got your emergency fund set up and you are effectively paying off your debt you can focus on your retirement. Saving for retirement is a goal you may be working towards your entire life. It is the perfect example of a long term investment.

5. Monitor and adjust when necessary 

The best way to stay on top of your budget is to record all of your expenses and income. There are many free apps you can use to do this or simply create a spreadsheet. Having to input expenses will cause you to think twice before splurging, and it’s especially satisfying and motivating to record when you’ve met a savings goal.

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