How to Budget

Let’s Talk Budgets: Your Key to Financial Freedom

Introduction

Budgets have got a bad rep lately because they are often seen as restrictive tools. However, a budget is actually a powerful instrument for staying in control of your finances. In essence, a budget is a financial plan for a defined period. It is a really useful tool to get on top of what is coming in versus what is going out. Organisations use budgets to plan ahead and to check how they are performing throughout the period. Why not use this tool for yourself?

Why Budgeting is Essential

1. Budgeting Gives You Control

One of the biggest advantages of budgeting is that it gives you control over your money. Instead of wondering where your money went at the end of the month, you can dictate where every penny goes. This control can significantly reduce stress and help you feel more secure.

2. Budgeting Keeps You Organised While You Plan for the Future

Budgeting isn’t just about the here and now; it’s also about planning for the future. By setting aside money for future expenses and goals, such as buying a house, going on a vacation, or saving for retirement, you ensure that your long-term objectives are achievable.

3. Budgeting Builds Better Habits

By tracking your spending and sticking to a budget, you naturally build better financial habits. You’ll become more mindful of your purchases, prioritise your spending, and make informed financial decisions that can benefit you in the long run.

4. Budgeting Helps You Manage Debt and Build Savings

A good budget can help you manage and pay off debt by allowing you to allocate funds specifically for debt repayment. Additionally, budgeting enables you to save more effectively. Whether you’re saving for an emergency fund or a big purchase, budgeting helps ensure that you put money aside regularly.

The 50/30/20 Budget Method

One of the most popular and effective budgeting techniques is the 50/30/20 budget method. This simple yet powerful approach divides your after-tax income into three categories:

1. Needs (50%)

Half of your income should go toward necessities. These are essential expenses that you can’t live without, such as housing, utilities, groceries, transportation, insurance, and minimum loan payments.

2. Wants (30%)

Allocate 30% of your income to wants. These are non-essential expenses that enhance your lifestyle, such as dining out, entertainment, hobbies, travel, and shopping. It’s important to enjoy your money, but within reasonable limits.

3. Savings and Debt Repayment (20%)

The remaining 20% of your income should be allocated to savings and debt repayment. This includes contributions to an emergency fund, retirement accounts, and additional debt payments. The goal is to save for the future and reduce your financial obligations.

Implementing the 50/30/20 Budget

Step 1: Calculate Your After-Tax Income

Determine your monthly after-tax income. This is the amount you receive in your bank account after all taxes and deductions have been taken out.

Step 2: Categorise Your Expenses

Review your current spending and categorise your expenses into needs, wants, and savings/debt repayment. Be honest with yourself about what constitutes a need versus a want.

Step 3: Adjust Your Spending

If your spending doesn’t align with the 50/30/20 rule, adjust accordingly. This might mean cutting back on non-essential expenses or finding ways to reduce your necessary spending.

Step 4: Track and Review

Regularly track your spending to ensure you are sticking to your budget. Review your budget periodically to make sure it still aligns with your financial goals and circumstances.

Conclusion

Budgeting doesn’t have to be a restrictive chore. When done right, it can be a liberating practice that gives you control over your finances, helps you plan for the future, builds better financial habits, and enables you to manage debt and savings effectively. By adopting the 50/30/20 budget method, you can simplify the process and set yourself up for financial success.

Ready to take control of your finances? Download the Roots to Froots Budget template and start budgeting today and pave the way for a secure and prosperous future.

Budgets have got a bad rep lately because budgets are seen as a restrictive tool however it is actually a really useful tool of staying in control of your finances. A budget is a financial plan for a defined period. It is a really useful tool to get on top of what is coming in vs what is going out. Organisations use it as a tool to plan ahead and check how they are performing throughout the period.

• Budgeting gives you control.
• Budgeting keeps you organised whilst you plan for the future.
• Budgeting builds better habits.
• Budgeting helps you manage debt and build savings.

Why not use this tool for yourself?