Have you ever received your monthly salary only to realize that it is all gone before the next two weeks? Do you ever wonder where all your money goes after earning significant returns from your business? What about those huge cash gifts that disappear from your pockets almost immediately? If any of these sounds familiar, the answer is simple. You are not prioritizing personal budgeting.
Personal budgeting is a powerful means that helps you stay financially stable, even during economic challenges. It is the reason many people can handle emergencies without bothering the next person. It is also the reason some individuals remain disciplined when it comes to wasteful spending. With proper budgeting, you can separate your wants from your needs, control your spending, and gradually work toward financial independence. Most importantly, it gives you total control over your income.
For a long time, I struggled with personal budgeting. As a natural giver, this made things harder for me. I found it difficult to say no whenever someone asked me for financial assistance, even when it meant giving them my last money. I was also guilty of impulsive spending, and I mean, heavily! I bought things simply because I liked them, without considering their long term value or whether I actually needed them. Thankfully, things have changed.
As a more financially aware adult living in a developing country, I have had to adjust my financial decisions to match the current economic reality. I have let go of unhealthy spending habits, prioritized personal budgeting, and I am now committed to reviewing my budgeting plans every month. The next part of this blogpost will walk you through how I was able to achieve this.
What Works For Me: Personal Budgeting 101
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1. Calculate Monthly Income and Track Expenses
This is the first step in my budgeting process. I review all my sources of income and identify the ones that are consistent. i.e Any source with a steady monthly inflow becomes part of my monthly income. Then, I go further to download my bank statement from the previous month. This helps me analyze how my money was spent. I record everything in a Google spreadsheet and group the expenses into categories such as fixed, irregular, important, and less important.
2. Eliminate Unnecessary Spending And Set A Monthly Goal
From my spreadsheet, I remove expenses that serve no real purpose or those I can comfortably do without. This gives me clarity on my entire spending plan. Afterwards, I set a monthly financial goal, such as saving for my project management certification. As my income comes in, I intentionally split it to cover fixed expenses, savings, and miscellaneous needs/wants.
3. Practice The 50/30/20 Rule
I adopted this rule after learning about it from a finance lawyer on social media, and so far, it has worked well for me. Since controlling spending was once a challenge, I use three different bank accounts alongside my spreadsheet to practice this rule. Each month, I send 50 percent of my income to account 1 for needs, 30 percent to account 2 for savings, and 20 percent to account 3 for wants. And there, I have my finances all sorted out with less future panics.
With these three steps, I've gained financial discipline, peace of mind, and I'm no longer running out of money every two weeks. I am able to manage my finances more effectively each month. Whether I am saving toward an important goal, covering my regular expenses, or preparing for emergencies, I feel more confident and in control of my money. I believe if you follow these steps consistently, just like I do, you can build the same financial discipline and stability for yourself.
This blogpost is a response to this week's SciFi Multiverse Prompt, Edition 2, where we're asked to share our thoughts on personal budgeting. If you'd like to write with us, you can learn more Here.
