Piggy banks for pennies can be almost obsessive for many children. Yet when we reach adulthood, many of us are less inclined to keep track of our incomings and outgoings.

A personal budget is a vital tool to feel in control of your financial destiny. Knowing what you earn and spend can help ease underlying financial worries and enable you to achieve life goals, too.

A budget is an estimate of income and expenditure for a set time. In practical terms, budgets help you manage and plan these incomings and outgoings.

The surplus can be spent, saved, or used to pay off debt. Good budgeting can be a life-changing habit, and luckily, it’s a straightforward one to pick up.

Why Do I Need to Make a Budget?

Budgeting equips you to meet the financial challenges of life head-on. A study found that many people are just 2-3 pay packets from homelessness, so unexpected expenses and financial hardship may not be as distant as they seem.

Budgets also allow people to save to buy a house, live independently, take a holiday or career break, or support a family member through University, among many things. Ultimately, controlling your finances can ease money worries and make life goals achievable.

Let’s look at how to attain financial milestones through budgeting. A bit of bookkeeping and some lifestyle changes could be all that stands in your way.

1. Calculate Your Monthly Income

The first step is to write down all your income. Incomings includes pay packets, interest from savings, child support, part-time earnings, anything that comes into your account. Always write net amounts after taxes and deductions because this is your actual income.

There are many handy tools to help, from a simple Excel spreadsheet to a Google spreadsheet, free smartphone apps and desktop software for small business owners.

Freelancers or anyone with irregular income need to spend more time on this section. Perhaps look at annual income figures to get a more accurate picture of your financial incoming.

2. Work Out Your Spending Levels and Habits

Spending can usually be attributed to one of two types: fixed and variable. Scour bank statements over several months to give you a feel for these figures. You need to work out your monthly spending habits to compare them to your monthly income.

Typical, regular expenses include:

  • Rent or mortgage
  • Bills
  • Credit card payments
  • Loans and debts
  • Subscriptions like Netflix or the gym
  • Insurance
  • Utility bills (gas, electricity)
  • Food and drink
  • Pet expenses
  • Hire purchases
  • Medical bills

Some of the above are variable expenses that you can change through behavioural alterations. Walking more saves on petrol, cooking cheaper meals at home reduces food bills.

Factor in fun money, too, for meals out, cinema, gifts, takeaways and so on. Some budget software will allow you to put expenses in different categories to analyse your spending better.

3. Set Spending Goals

Budgeting brings challenges. Financial goals help motivate people new to budgeting. Clear objectives crystalise the sacrifices required to achieve a dream and enable people to set realistic priorities.

Spending plans can be short-term, a year or less, or much longer term. A short term goal could be clearing a credit card debt, saving money for a trip away, or buying some new clothes.

Long-term spending goals might include saving a deposit to buy a house, car or taking a career break. Parents may wish to put money away for their children’s university education.

We recommend making an emergency fund part of your spending goals plans so you can confidently handle any financial surprises that may come along.

4. Make a Budgeting Plan

Now is the point that those budgeting tools come into their own. Design your own Excel spreadsheet or try a Google spreadsheet, a free smartphone app, or desktop software for small business owners. Your bank may have an online budget service, too.

Use the tools to set budget limits and categorise each expense in order of importance.

For example, your food bill is maybe 250 euros a month. But you need it to be 200 euros a month to hit your spending goals. The tools alert you when you overspend and track and highlight spending trends. Diligent use of budgeting tools is a vital part of hitting your spending goals.

5. Monitor and Adjust Your Budgeting Plan

Of course, what looks good on paper doesn’t always work in the real world. It’s now time to see how your spending plays out in your daily life.

Those daily takeaway coffees you grab on the way to work may soon start adding up. Is it time to take a thermos from home? Ask yourself about each item: do I *want* this, or do I *need* it? This questioning may dictate whether your purchases are necessary or not.

Cutting back on the fun things, which usually feature in the ‘wants’ column, often offers the easiest ways to reduce your budget. Look at things like your insurers — any savings there? Do you watch all those subscription TV channels enough to justify the outlay? Perhaps you could trim your phone plan back?

Budgeting can be challenging, especially if it’s the ‘fun’ stuff that goes first. These behavioral changes also offer some of the most long-term financially rewarding of all alterations you make. However, they provide opportunities to save for what once seemed unreachable. Small savings add up.

6. Schedule Budgeting Check-Ups

Budgeting is a discipline that needs regular updating and attention to be successful. Your life is your own, which means your budget is a living, organic document that you can adjust to your desires.

Goals change over time, especially if you keep ticking off savings targets. Your income will also vary, so don’t be afraid to revisit and revise your goals, outgoings, and budget plan. Don’t become wedded to something that makes you unhappy. Whatever the reason, keep reviewing your budget following the above steps.

7. Some Extra Budgeting Tips for Freelancers

Freelancers need to work out how much time is spent on clients and the financial worth of each customer. Work out the net costs of your work, keep good time and financial records, and understand your income.

You’ll have other monetary issues, too. Good budgeting for freelancers also includes:

  • Good bookkeeping records.
  • Saving for retirement.
  • Paying taxes on time.
  • Consider health insurance.
  • Use a separate bank account for all business transactions.
  • Building up a nest egg to cover 9-12 months’ expenses.
  • Keep a record of all tax payments and possible tax deductions.

These steps take time but help with budgeting in the long run.

Create a Personal Budget Today

A few steps and a little time invested could see the seeds of budgeting grow into achieving life goals. Small changes can significantly impact and reward you with more financial security. Looking after the pennies can help the pounds look after themselves.