Budgeting Basics

Before you can master your money, you need to know where it's going. Budgeting isn't about cutting out every little indulgence; it's about regaining control of your finances, giving you a clear view of your income, spending, and savings as you invest in the future. More often than not, some sacrifices must still be made, but this will benefit our future and that of those around us.

The first thing we must eliminate is present bias, the tendency to value your present self over your future self. Though it's easy to procrastinate, we need long-term thinking to make savvy choices for our present and future.

Now we can enter the world of budgeting. To begin, you should identify your goals and clarify what you hope to accomplish. Whether it be saving for the future or having a rainy day fund, you need to decide what it is you want and what you will have to do to achieve it. Next, you should determine your net income after taxes and utilize these figures as your starting point.

Then, we can start tracking your spending. This allows us to see where you may be spending too much so we can redistribute funds into other pools or investments. You can accomplish this tracking in a variety of ways, such as by using budgeting apps or simply recording all your monthly expenditures.

Thereafter, we can create a budget plan to fit you and your goal. Now there are many different ways to do this, but some of the most popular ones are the 50/30/20 rule, in which you break down your spending into 50% needs, 30% wants, and 20% savings/debt. Another popular method is zero-based budgeting, which allocates every dollar to either spending or saving. Next is the envelope system, which requires you to set budget categories and decide how much to allocate to each.

Budgeting is about optimizing your spending, ensuring you know every dollar goes to the right place. By learning where your money goes, you can work to alleviate current and future stress, giving you more funds to distribute into investments, an emergency fund, or even personal expenditures (if done in moderation, of course!).