Learn To Manage a Budget Before Spending Your Money

Budget; Then Buy; Not the Other Way Around

Consumers seldom think about how a purchase could affect their budget. They'd much rather buy it now and feel the financial sting later on. While it works out well in most cases, it's not the most astute way of building a sound financial future. Here's why and how budgeting should unequivocally supersede your buying habits.

Why Budget and Then Buy?

Budgeting before buying products or services of need or desire will enable you to allocate only the right amount of cash into any given purchase. More importantly, it enables you to set aside money as savings or as an emergency fund for rainy days. There are many who oppose the idea of budgeting and even argue why such principle is nonsensical and ineffective. Keep in mind, however, that budgeting is both a science and art form, requiring both sound theory and application in order for it to work. One cannot simply pick up the skills of effective budgeting overnight, much more hope to implement it effectively the next day. Here are some time-tested budgeting strategies you should try.

Identify Classic Categories

The traditional budgeting approach is to have a sit-down with family members or housemates whom you share expenses with. Figure out your net monthly income and expenses. Categorize expenses based on necessity, with the most important needs being assigned with the highest spending limits and the least important ones with the leftover from your monthly paycheck. The idea is to try and limit your spending in each identified category. If you set a budget of $100 for entertainment per month, then you'll need to keep track of how many movies you rent per month, how many times you eat out with family and friends, and so on.

Consider Zero-Based Budgeting

Another popular budgeting approach is known as the zero-based method. Basically, you give every dollar of your income source/s something to do. It's very straightforward and works best for people who know precisely how much cash is coming in every month and when it is coming. Whether it's buying groceries or investing in a 401(k), each dollar already has somewhere to go, which brings your cash flow to zero every month.

Use Envelopes

Envelopes are another way to keep track of your budget and expenses, and tries to get you to pay for every purchase with upfront cash. The idea is to place envelopes with labels corresponding to specific categories for different expenses. After you've had your paycheck wired or handed to you, take the cash and divide into the envelopes. Once the cash is sorted out into their proper envelopes, all you'll need to do is take money from it when the corresponding expense comes up.

Avoiding Credit Cards

Or at least don't use one until you can nail down a budget plan that actually works. The purpose of a budget plan is to trim down expenses and allow you to live within your means while also allocating some cash flow for your financial future. By avoiding credit cards, you raise a proverbial guardrail that helps you stay focused on the task ahead. If you do need to purchase with credit, consult with a direct lender who can give you reasonable rates and repayment terms.

The Role of Technology

Technology is undoubtedly changing the way humans handle their personal finances, more specifically their budgets. With budgeting apps, like Wally and Mint, you can easily create a budget with professionally-built templates that can categorize, compute, store, and update your financial data for more accurate results. Investing apps, like Robin Hood and Acorn, are also paving the way for people to invest more efficiently while minimizing the complexities of the financial industry to the layman.

Final Thoughts

Budgeting and then buying should be a mantra to live by for those who wish to build a financially sound future. This two-pronged approach to your finances will help you minimize expenses and maximize savings at the same time.