If you have just started earning and you are new to budgeting this article will help you to learn and make yourself aware of three basic steps of budgeting
Budgeting is a financial plan that takes income and expenses into account and then provides estimates of a given period of time.
These three components will help you to understand the basics of budgeting
Determine your monthly income – The first step to understanding budgeting is knowing your monthly income from any jobs. For eg, if you are a freelancer with a job the earning should be added into this.
Your expenses – The second step of budgeting includes your monthly expenses, not on your luxurious items, but the expenses that are necessary like your rent, food, bills, insurances etc. You can take help of the spreadsheet for your monthly expenses.
Other expenses – Your other expenses include your spending for luxurious things like buying another car, or tv or going out for partying and dinner with friends.
I will always advise you to save up and invest and it will help you in the long term. Spending all the money as soon as you get it can be risky.
I recommend the popular 50/30/20 budget to maximize your money. In it, you spend about 50% after tax on your needs, less than 30% on your needs, and at least 20% on savings and debt repayment.
I like the simplicity of this plan. In the long run, those who follow these guidelines have manageable debt, occasional room for indulgence, and savings to pay irregular or unexpected costs and retire comfortably.