Making a budget to manage your money is very crucial. While making a budget it is important to follow a few essential points. Also, there are a few things which have to be avoided. Here is a list of do’s and don’ts of budgeting which will help you to make a fabulous personal budget for yourself:
Do’s of budgeting
- Do analyze your current spending before making a budget– First list down all your spendings. Then according to your spendings estimate your monthly expenses. Analyzing and listing your current spending will help you to accurately estimate your expenses. It will also help you to estimate how much you can save and invest in the future.
- Do set realistic goals: Realistic goals mean restricting your spendings only to an extent that is possible as well as accurate for you. This can only be done by analyzing your income and expenses of the previous months. It will help you to make correct estimations for your budget.
- Do specify your financial goals and prioritize them: Before making a budget list down all your financial goals. Financial goals can be of various types such as buying a house, paying off debts, a family trip, etc. Prioritize the goals which are more important to you and channelize more money towards them.
- Do separate your needs and wants: Separating your needs and wants is very essential to lead a healthy financial life. Whether a good or service is a need or want is very subjective and depends upon person to person. You should check whether the goods on which you are spending a lot of money are something of your necessity or just a mere want. And then accordingly plan to spend your money on the goods and services.
- Do follow the budget and keep updating it: As I have said in my previous articles also, following a budget is as important as creating one. The other most important thing is also to keep changing it according to your present circumstances. Use the trial and error method, i.e., make a plan, try and implement it wisely, if it works for you, that’s amazing. But if it doesn’t work for you then change your plans according to your needs until you get the ‘best personal budget’ for yourself.
Don’ts of budgeting
- Don’t follow the will and wish method: Don’t make your budget as per your will and wish. Follow a proper strategy to make a budget that suits your needs.
- Don’t be so strict on yourself: Following a budget wisely will definitely help you to organize your money but don’t be too strict on yourself. Always spend your money on the things that you feel are necessary for you without any hesitation.
- Don’t forget to add unexpected expenses: Unexpected expenses can become a huge cost for you if you don’t make emergency funds for them. So don’t forget to add an extra column of emergency funds in your budget.
- Don’t spend more than you earn: If you will spend more than you earn, you will incur a lot of debts. This will not be good for your financial life. So limit your expenses up to the level of your income.
- Don’t sit and make a budget every day: It is necessary to update the budget regularly according to your present conditions but make sure that you don’t spend so much time on just planning how to spend your money every day. Your time is as important as your money. You can make weekly budgets and then follow up to make changes as necessary.
Here’s an infographic to help you understand the do’s and don’ts of budgeting in a quick and easy way:
There are a lot of things to be kept in mind while making a personal budget. But the most important thing to remember is that you can alter the budget according to your present conditions. I hope this article helped you to understand the do’s and don’ts of the budgeting process.
If you want to learn the process of budgeting, head over to our article on: What is a Budget: The process of budgeting.
Also if you want to learn about the objectives and importance of budgeting, do read our article on: Why is the budget prepared: The purpose of budgeting.