Everyone should be aware of the concept of budgeting, which is to create a plan for spending money.
First and foremost, you must understand the exact amount of your net income, which is after deducting taxes and social security contributions. If you have irregular income as a freelancer for instance, you can track your income based on your work contracts.
Check your bank statement frequently, or jot down your money flow. This is to figure out your money spending pattern, for example, rental, car, food, gas, and bills are the fixed monthly amount to spend. Next, you should take note of how much you spend socialising or leisure activities after work. These include books, events, gym, bar, etc.
After learning your expenditure pattern, it is time for you to create your budget plan. You will need to separate your income into three parts. Half of your income should go to rent, food, utility bills, which are the payment to maintain your living. Meanwhile, 30% of your income shall be allocated to entertainment such as Wi-Fi and phone bills, dinner meetings and movie tickets. The remaining 20% of your income goes to your bank savings, or payment of high interest debts. You can also use them for investment, but please research before investing your money. It is vital for you to learn about some investment tips, since it can help to secure your financial future, and to increase your passive income.
By separating your income into a few portions, it allows you to spend your money flexibly. For instance, if you are experiencing a bountiful month, where you earn bonuses or windfalls, you must stick to your budget plan to resist temptations or overspending. Keep in mind that you always need to prepare for a salary drop or sudden loss of job too. If half of your income is not enough to cover your basic needs, you need to adjust accordingly to stay on budget.
Last but not least, you need to review your budget plan regularly. This is to make sure that you are always on the right track. If you have a salary raise or are getting married, your expenses and goals might change. You will need to create a new budget plan in order to fulfil your needs and desires. Therefore, following the above steps and making it your routine is vital for your budget planning.