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Budgeting 101

One of the first building blocks of a successful personal finance plan is the ability to budget. Although it’s easy to understand, it’s also difficult to do because it requires a hard look in the mirror and a willingness to see what really stares back at you.

Budgeting requires that you analyse and, likely, change your spending habits. Instead of your money controlling you, you control your money. Develop habits to save, avoid financial crisis and maintain peace of mind.


A successful budget plan clearly defines:

♦ How to follow a monthly spending plan

♦ Ways for lowering your monthly bills

♦ How to handle accrued debt

♦ Debt pay-off options like the snowball and avalanche methods

♦ How to distinguish between short-term, medium and long-term goals

♦ A breakdown of family needs


How do you get started budgeting? Simple: you plunge right in. You need to see exactly how you’re spending your money and identify where your financial holes are.

1. Start tracking your monthly expenses

In a notebook or a mobile app, write in every time you spend money. Be diligent about this, because it’s easy to forget. This is the foundation for your budget.

2. Identify fixed and variable expenses

Fixed expenses are ones that you have every month for example - rent, mortgage, car finance payment, utility bill, student loan payment.

Variable expenses are costs that go up and down each month and ones that come and go such as – food spend, haircuts, coffees, leisure activities.

3. Add up the totals

After three months, calculate how much you are spending, on average, per month. And look at the categories of the spending.

4. Study your expenses

Determine which of these are necessities and mark them accordingly. Variables is where most people tend to overspend on non-necessities, so decide what gives you the most pleasure from your monthly expenses that you feel the costs are worthwhile? And which ones can you really do without? Be honest and start cutting these down. This is the beginning of the hard decisions.

5. Factor in savings

A key part of budgeting is that you should always pay yourself first. That is, you should take a portion of every wage and put it into savings. This one practice, if you can make it a habit, will pay dividends throughout your life.

6. Now set your budget

Look at your income and deduct your necessities first. Then start making the necessary cuts in your fixed and variable expenses. Decide what you want to save every month and the leftover money is how much you have to live on.


Effective budgeting demands that you are honest with yourself and put together a plan that you can actually follow. The more time and effort you put into your budget today, the better you will be able to maintain a life-long savings habit.