The Beginner’s Budgeting Guide for Big Spenders
If you’re a big spender, raise your hand.
Big spenders love to treat themselves to shopping rounds, fine dining, and all the other joys that money can buy.
But these habits often lead to overspending each month. As a result, there is not enough money left for important life goals and responsibilities. Sooner or later, you’ll end up in debt if you don’t learn how to manage money in time.
This is why every big spender needs to learn how to create a budget, and stick to a budget for the long term.
Yes, it’s difficult in the start to cut down your expenses and learn be frugal. It’s hard to stick to a budget, when you could be shopping the days away.
But budgeting allows you to make a spending plan for your money. When you prioritize your spending, then you focus your finances on the most important things:
You can start saving up for a home, you can pay off your debts, and you can even start your own business. All your financial problems will get sorted out, and you will be able to set financial goals, only when you create a budget.
So, without further ado, here are five simple and straightforward steps to help you start managing your money:
First Step: Determine your monthly income
Calculate your total monthly income, and don’t leave any sources of income out. Include things like rent payments or side jobs/freelancing jobs if they apply to you, not just the money you take home from your salary. Jot down all your sources of income in list form and add them up.
If your monthly income is variable, add your last 3 months’ income and divide it by 3. Use this averaged amount for the later steps.
Second Step: Tally up your established monthly costs
Non-discretionary expenditures or fixed expenses are the ones you are obligated to pay each month. These include debt payments, rent or mortgage payments, water bill, gas bill, care payments, groceries, etc. Jot down all your fixed monthly expenses in list form and add them up.
It might be scary to begin this task if your personal finances are messy and you haven’t tackled them for a while. But the sooner you start, the better!
Third Step: Set your financial goals
Now what you have to do is give yourself a plan to manage money. This plan will help you focus on the important expenses, rather than just on your daily spending routine.
Think about the plans you have for your life. Do you want to be immensely wealthy? Do you want to live debt-free, with a good lifestyle and financial security?
Think about your ideal financial situation, then compare it to where you stand right now. Then, start writing down personal finance goals. Some examples are:
- Start putting aside money for a house down payment
- Pay off all debts
- Start a retirement account
Once you have determined your personal finance goals, starting thinking about them like “expenses”. Over time, start incorporating them in your budget, and paying them monthly.
That way, you’ll develop a practice that compels you to accomplish your set financial goals little by little, and be on the high road to success in no time.
Fourth Step: Define your flexible expenses
This is the time that you can think about and plan for “discretionary expenses”, which include spending on entertainment, personal care, clothes, gifts, dining, holidays, and what not.
Adjust discretionary expenses on the basis of your affordability.
Remember that discretionary expenses come after fixed expenses and financial goals. They are the THIRD priority, not the FIRST priority.
Fifth Step: Subtract your income from expenses
Now that you have determined all three types of expenses (non-discretionary, financial goals, discretionary), you should subtract the total expenses from your total income.
If you get a positive number, you are making more money than you’re spending. Congrats! You can even adjust your budget a bit if you want now, or you can put the excess into savings or towards your financial goals.
If you break even, that means you have no margin to spend more. You should adjust your budget to give yourself a slight margin, for emergency funds.
If you get a negative number, you’re spending more than you’re earning. Adjust your budget by curtailing discretionary expenses, or find a new source of income to make more money.
No matter the number you get in the end, the good news is that you have started your path to personal financial success!
Now that you’ve done the hard part, all you have to do is stick to your budget, monitor it, and adjust it as you go.
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