Why is budgeting important? Budgeting helps ensure you don't have more money than you actually have, and when done well, can help you save for the future!
Components of a Good Budget
- Realistic, clear and concise goals
- Accurate spending categories
- Accurate income projections
- Tracking methods
- Regular review and adjustments
A major component of budgeting is the establishment of goals. Your goals should be for both the short-term and long-term. Your goals need to also be reasonable and attainable.
Examples of goals include:
- Reduce spending on restaurants
- Save 10% of income
- Save for a new car
- Save for a house
Once you determine your goals, write them down and review them every three months. It is critical that you track your progress and adjust goals over time. You are expected to have major life events and adjust goals as you progress through your career.
Accurate Spending Categories
It is essential to have spending categories to match your activity. Everyone will have different categories in which they spend money and you should match them accordingly.
Accurate Income Projections
When budgeting you will want to estimate your total monthly income. It is best to calculate guaranteed paychecks in a month when necessary and if you're an hourly employee it is essential to be conservative. It is better to project lower budgeted income and receive more than to do the latter.
To calculate your future paychecks you should use the average of your three most recent payment amounts to estimate future payments. For bi-weekly paychecks, you should estimate two paychecks a month and you will have two bonus paychecks throughout the year.
There are several free online budget tracking systems. When selecting a service you want to verify the website and ensure your data is safe. Most sites will ask for your banking account information and this information should not be given out unless verified.
Reliable budget apps/websites:
Regular Review and Adjustments
It is necessary to review your current budget and make adjustments along the way. Everyone will have major life events that will require making adjustments. A good budget will be updated and reviewed over time. It is recommended that you track your budget each month and every three months you should review your current financial position and adjust as needed.