4 Key Components to an Effective Budget
Budgeting can have a negative stigma surrounding it.People think of budgets and they think of a restriction on their life due to them not being able to complete the items they really want to do. A well crafted budget does not put a restriction on you.A great budget allows you to save up for those vacations you want, still go out for dinner with friends, or whatever it is that you really enjoy doing.There are 4 key components to a budget:
- Income
- Expenses
- Savings
- Fun Money
By adding each of these components into your budget, you are able to live a well rounded life financially.Your budget is a constantly evolving item that changes as your financial needs change. For each of the following categories, please note that they are your ideals. If you are not able to achieve the targets at this time, aim to work towards it.
Income
This is the part of your budget where you list all of your money coming in from all sources. Your income can include: salary, business income, dividends, rental property income, etc.
Expenses
This is the part of your budget where you list all of your money going out.For best practices, you will grab 3-6 months of expenses and grab an average from them. This allows you to catch some of your one-off items that come up once a year.For outstanding debt amounts, you can reach out to each individual debtor or look up the accounts that you have the debt with. Take note of the amount outstanding, how much is your monthly payment, and when the payment is due.
Savings
Build up to having 10% of your income saved up for retirement and 3-6 months in an emergency fund.
Fun Money
Each and every budget, set aside some money to allow you to spend on yourself guilt-free. By including this money for yourself, you are less likely to feel stressed and go off track with your budget.Budgeting is a tool to get where you want to financially. By taking the time to complete a budget, you are able to see where your money is going and adjust it to where you want it to go. For example, spending $100 in take out food, if this is not a top priority for you, you are able to evaluate and decide how you would like the money to be spent.I’d love to hear below, have you completed a budget before? What is your biggest struggle?P.S. Have you grabbed my free 5 day financial challenge yet? You can grab it here.