Financial Literacy: The Basics of Budgeting

One of the key strategies to attaining financial stability is budgeting. If you are yet to understand how you can make sense of your finances, divert your money to profitable ventures and maximize value, you fall short, completely, of a “financially literate person.” Harsh, but it’s true.

However, the principles of budgeting are not as hard to imbibe as you may imagine. It’s nothing to get the heebie-jeebies over. In this article, we’ll be exploring some of the basics of budgeting. And, how you can apply them to safely cement your financial freedom.

What is Budgeting?

The first step is to have a clear understanding of the concept of budgeting. But, before we go into that, let us talk about what a budget IS NOT. There are so many misconceptions, and dispelling them would seem inappropriate.

First, a budget is not a financial limitation plan: it shouldn’t push you to a life of outright self-denial. It should open you to financial freedom and balance instead.

Second, a budget is not a strict line-up of things you hope to do with your finance. Your budget should be flexible and open enough for emergencies and “unforeseen circumstances.” This, however, doesn’t mean you shouldn’t be realistic about your income and expenses.

So, what then is a budget?

A budget is simply a scheme (can be otherwise referred to as a “financial plan”) that allows you to weigh your income and set up ways of managing your spendings over a period of time — say a month, a quarter, or a year, depending on your income inflow as well as some other important factors we’re going to be discussing soon.

Determining what Your Regular Earnings are

Now that you fully understand what a budget is, what is your income? If you’re a salary earner, this would be easy for you. You should already have automated savings and deductions on your regular earnings. So, factor those in, too. The income you should be concerned with here is the amount you’d receive after every deduction has been made on your salary (take-home income), not your original earning.

Don’t forget the regular earnings from your side hustles too if you have them.

Examining your Spending History

Another important step to budgeting is your previous spending activities. How much money do you spend in a day or month, on food, transportation, rent, and a lot of other things you can think of?

If you don’t know this, you can easily track all your expenses using any of the savings or budgeting tools I mentioned in my previous article. Your bank statement can also be a helpful worksheet in determining your expenditure.

Choosing a Suitable Budgeting Plan

Before going ahead to create your budget, you’d have to consider a budgeting plan that’s most suitable for your income level. Be sure to also choose a budget plan that would near-perfectly represent your wants and needs, especially in times when you need to make unexpected commitments.

Designing your Budget

After choosing a budget plan, you’re free to create your budget. To design your budget, you’d have to do simple math.

First, remove your total monthly spendings from your take-home earnings. You should have some money left that you can save, set-out for emergencies, and also invest. Make sure you get the most out of your money and prepare for times you’d have to make unintended expenses.

Update your budget from time to time

Don’t forget to regularly update your budget. Your budget is, as I mentioned earlier, a flexible plan you should be able to revisit every time you need to. It shouldn’t force you to live a life of complete self-denial. It should be seen as a blueprint on how you can spend your money.

Final Thoughts

As I mentioned in an earlier post, budgeting is one of the most reliable ways you can achieve financial security.

More than you realize, budgeting your finances opens you up to more opportunities — since you’d be the captain of your finances — and ultimately sets you up for financial freedom.

Incorporating these budgeting basics into your life will invoke a positive not only in your spendings but also in your overall self-worth.

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Dr. Rayyan Ep

A Venture Builder based in Asia with over 20 years of entrepreneurial experience across APAC & MENA. Often described as a “Technopreneur”;