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Budgeting 101

1 Sept 2020

Author: Lote Larmane

2020 has been a turbulent year to put it mildly. Our work and social lives have changed dramatically and our habits and routines have been disrupted. What’s even worse is the fact that our incomes and savings have dropped markedly adding an unwelcome financial strain to an already tenuous situation.

We have already given advice on how to handle disruptions to your habits and maintain your sanity during these tumultuous times, but seeing how the pandemic is not about to leave anytime soon and governments will not keep the financial aid taps open indefinitely, it is more pressing than ever to start managing your money more carefully. Furthermore, pandemic or not, we are in the midst of one of the most budget breaking times of the year. That’s right – it’s back to school (or university), my friends!

For those who track their finances, budgeting may feel natural, but the fact of the matter is that the vast majority of us don’t really think about personal finance. Even before COVID-19, shocking numbers of Americans were living from paycheck to paycheck or had credit card debt. It is almost certain that you have friends or family members who also fall into this trap. I can tell you from experience – budgeting will not only make you better off financially, but lead to a happier and more peaceful life. So if you are a parent, student, or just a regular reader with no budgeting experience, follow these simple steps and I guarantee that it will change your life.

Create a budget

I can’t stress this enough – keeping a budget in your head will not work. You need to write it down or have an app for it. A budget will help you to (1) plan how much you will spend or save each month, (2) track your spending habits, and (3) make careful and thought-out revisions.

Here we have you covered. BePrime offers an easy to use but comprehensive budgeting tool that also allows you to integrate your financial planning with other aspects of your life (such as habits, goals, time management) and see how all those things interact. Once you have your budgeting tool, all you need to do is:

  • Gather and analyze your financial paperwork (bank statements, receipts, loan statements, utilities bills etc.);
  • Calculate your income;
  • Categorize your monthly expenses (using the data from the first step);
  • Determine fixed (same amount each month – rent, mortgage, loan payments etc.) and variable expenses (amount changes from month to month – groceries, entertainment, gasoline etc.);
  • Add up all your income and expenses;
  • Make adjustments to balance everything (expenses cannot exceed income).

I suggest budgeting to zero. That doesn’t mean that you have nothing left in your bank account at the end of the month, but every dollar or euro is accounted for. For instance, if you have money left over after categorizing, put it towards paying off a debt or add it to the “savings” category or start investing it. Keeping tabs on all of your money helps you make sound financial decisions.

Review and adjust

Creating a budget is the easy part; following and adjusting it on a regular basis is the hurdle most of us can’t jump over, at least in the long term. And it can’t be denied – no matter the method and the tool you use, keeping and updating a budget can be very time consuming. But remember – it can be very rewarding as well. 

I suggest not leaving all of the budgeting and accounting for a single day. If you are new to budgeting, consider entering your receipts and invoices as well as any additional income in your app or worksheet every day. That way you’ll have up to date information about your progress, allowing you to make fact-based adjustments to your daily routines. Moreover, doing it day by day won’t overburden you at the end of the month. Sure, it is a habit to foster, but once you are used to doing it, you’ll appreciate the results. 

When it comes to adjustments, don’t be afraid to cut costs and “shop around”. It is all too easy to assume that your expenses are set in stone, while in fact there is almost always room for improvement. Budgeting will not only reveal how much you spend on certain services or utilities (internet, insurance, gym membership, app subscriptions etc.), but it helps you compare prices and look for bargains. For example, many students and young adults are shocked when they first find out how much money they really spend on meals at work or school. Here’s a tip: preparing a lunch box or looking for cheaper lunch venues will save you loads of money. Of course, you probably shouldn’t reassess and restructure everything every other week, but a good personal audit every 6 months may help you save tons of money. 

Another thing to remember is to involve your significant other in financial planning. Even if only one of you holds the purse strings in the family/household, both of you should be aware of the financial situation and have a stake in making decisions and setting priorities. This is actually pretty important, as money is the number one issue married couples fight about and the second leading reason of divorce. Remember: if you are married or in a serious relationship there is no longer your money or my money—it’s our money. 

The great thing about the 21st century is that technology can lend us a hand every step of the way. Set up automatic transfers so that you don’t have to worry about fixed expenses or about your savings account. In a very trivial sense, automatic transfers allocates funds to the relevant account or expense preventing you from carelessly spending the money you need for the necessities. I know telling adults to be more careful with their money may seem somewhat condescending, but it is not. Well-marketed temptations are everywhere and with mobile payment and credit card systems so developed, it really takes a lot of consideration not to splurge exorbitant amounts on something you really don’t need. Budgeting will help you see how much of your money really disappears in these “black holes”.

Plan for the long-haul

Don’t you just love autumn? It’s warm outside, the leaves are turning colors, streets are filled with kids flowing back to school… Well, with the pandemic still raging globally, we still don’t know whether streets and courtyards will be filled with playful chatter. What is certain, however, is that schools and universities cost money. Tuition fees, extracurricular activities, books, stationery, clothes, devices – all of these amount to a staggering sum that will weigh heavily on unprepared parents. Some will even resort to taking out a loan to cover these expenses. 

Herein lies the second wisdom of budgeting – make sure you plan your finances and set aside money for things like back-to-school supplies, routine car maintenance, birthdays, anniversaries (guys – don’t you forget!), Christmas etc. Regardless of the occasion, make sure you have set something aside for these expenses so they don’t sneak up on you. It’s really not that difficult as most of these are reoccurring events that just require you to open your calendar every once in a while (BePrime has you covered there as well). What’s best is that only a little planning will help you avoid tons of stress. Trust me – better to spend that 1 September celebrating with your kid, not pulling your hair out worrying over money. 

Of course, not everything is predictable and therefore we recommend setting aside some amount of money for unexpected expenses. That way, when something comes up, you can cover it without torpedoing your monthly budget. In addition, don’t forget to work on your overall savings and an emergency fund (read more). It is especially vital to have a safety pillow these days so I can’t stress enough how important it is to build a solid back-up while the going is easy.

Don’t forget to set goals

If you are a frequent reader of this blog, our advice to set goals may start to seem repetitive. But the thing is, even when budgeting, financial goals can help you structure your efforts and motivate you towards a result.

A real world example: say you have two kids and you realize that distance learning will be a must this school year. To make sure that they can join their classes from home, you need to save $1500 for two new laptops. While your emergency fund may cover some of the sum, you still need to come up with $900 in 3 months’ time. That is your goal. If you are aware of how much extra money you need, you can use your budgeting tool to review your finances, redirect funds from one category to another, and consider concrete steps and actions (either working some extra hours, travelling less, or not going out as much) to make that goal possible.

This is not to say that you always need a budgeting tool for saving some money. But I assure you that budgeting and planning will make the process seem far less stressful. Make a plan and stick to it to achieve your goal! Make your budgeting tool do the hard work of saving that money, while you just reap the rewards.

Setting goals and working towards them will help you maintain momentum, increase your chances of success, boost your motivation, and allow you to learn from your own best practice in future. The great thing about setting goals is that once you reach them, you want more of that sweet success. That in turn will motivate you to continue to set other budget related goals that will further improve your financial health.

In addition, budgeting does not have to be free of fun. Achieving goals can turn into a game of self-improvement. And as with all games – don’t forget to reward yourself every time you succeed. For example, treat yourself to a nice meal out if you have met your spending goals for groceries or if you have dined every night at home.

Maintaining a budget and planning your finances is at the core of good money management. Every other success in personal finance stem from this one thing. So do invest some time and effort in getting your financial house in order. It will bring outsized benefits over both short and long term. 

The great thing is that you don’t have to look far for help. BePrime has all you need to start off towards a more financially stable future.

Setting Green Goals
06 Mar 2021
Things Worth Splurging Your Money On
08 Apr 2021
Life doesen't have a do-over.
Commit to it! BePrime!
Life doesen't have a do-over.
Commit to it! BePrime!