How to Get Started with Budgeting and Expense Tracking

Budgeting is essential for you to be able to live within your means. It also helps you have enough savings for you to meet your long-term financial goals. There’s a 50/30/20 budgeting method that offers a great framework on budgeting.

Fifty percent of your take home pay should cover your living essentials, such as rent, utilities, groceries and transport.

Thirty percent is allocated to discretionary expenses, such as dining out and shopping for clothes. Also giving to charity can be included here.

Twenty percent goes toward the future this includes debts down payments and saving for retirement and emergencies.

Budgeting involves creating a budget which is a critical part of intelligently managing your own wealth. Yet it’s something that people tend to overlook and understate its importance.

There are five basic elements of a budget which include;

1. Income: This is the first place where you should start when thinking about your budget. Income is basically the amount of money that comes in every month. You should make sure you keep record of all sources of income.
2. Fixed Expenses : The next step after you have documented your income and knows exactly how much to spend every month is recording your fixed expenses. Fixed expenses are those expenses that are in flexible. Meaning that they won’t be changing at any time and cannot be eliminated. These expenses may include; rent, basic groceries, transport and others. You should deduct these expenses from your income so that you can be able to determine what you have left for other spendings and savings.
3. Debt : You might classify debt in the form of a fixed expense especially if you have a mortgage loan, car loan payment or student loan in which you make their payments on monthly basis. Nevertheless, you might also have unsecured debts like a credit card debt, paying this off should be a top priority since late payment might harm credit over time.  You should make it a priority from your income to put as much as possible towards paying down unsecured debts.
4. Flexible and unplanned expenses: Flexible expenses refer to things that you want but you don’t necessarily need them. This may include possibly a new pair of shoes that you’ve been meaning to buy. When thinking about how much money you have left to spend after accounting for fixed expenses and debt, you should also be sure to factor in the unplanned expenses.
5. Savings: Finally, you should not forget to think about your savings. This may include the money
   that you save for a rainy day or money that you are investing for the future. Its highly recommended for you to at least save 20% of your income every month.Thou this might vary based on financial situation. You should prioritize savings to flexible expenses
   
   

Prioritize your goals

You should make sure you have all your goals written down even the things that you fill are out of your reach. You should focus on which is important for your future self.

Once you’ve listed all of your expenses and goals, you should re build your budget based on your priorities, that’s by making your budget reflect on how you want to spend your money rather than how you are currently spending your money.

Fixed costs might be difficult to change but they can be reduced by: Downsizing your home to reduce your housing expense; Reducing your grocery bill by cutting out ice-cream and processed food. If you find ways to reduce the fixed costs, you should enter the new expense and recalculate your discretionary income.

Finishing your Budget

You should keep adding the next priority to your budget until you run out of money or expenses/goals. If there are expenses or goals left over, they will be eliminated from your spending. This isn’t because the expense is irresponsible, but because you have other priorities you care about more.  If there is money left over. You should consider adding that money to your goals or putting it into an emergency fund.

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