If you earn a decent amount of money but still end up with nothing in savings at the end of each month, then the problem could be with your budgeting. However, there’s no need to panic because you are not the only one with this problem. All you need is a good budget plan, and you will be able to manage your money in the best way possible every month.
Simple Tips to Budget Effectively
If you want to be left with some cash at the end of each month, budgeting is necessary. Even if you have never made a budget before, it doesn’t mean you can’t start now. Once you make a budget and see how it affects your finances, you will never go back. Here are the steps you can take for effective budgeting:
- Calculate your monthly income and expenses,
- Choose a budgeting plan,
- Make budget categories,
- Keep track of your spendings, and
- Revisit your budget plan at the end of the month to measure its effectiveness.
Which Budget Plan Should You Choose?
A good budget plan is one that not only covers all of your needs but also helps you set aside money for your wants. It will also make it possible for you to save a bit of money every month, so you never have to worry when you run into emergencies.
You can try different budgeting methods, including the envelope system, line-item budget, and zero-sum budgeting. Measuring the effectiveness of the budget method at the end of the month can tell you whether it is the right choice for you or not.
What Are Budget Categories?
Budget categories are what you get when you systematically group different expenses. But the categories can vary depending on the budgeting method you are using. For instance, in a 50/30/20 budgeting method, there are only three categories: needs, wants, and savings.
Detailed categories are more beneficial for people who find it difficult to differentiate between needs and wants. Fortunately, plenty of budget plans have clear types to help people manage their money. However, it is worth mentioning that budget categories can vary depending on what you are making a budget for.
Budget Categories for Home
Every adult knows how difficult it can be to take care of the different expenses of living on their own. But instead of spending money with no plan, it is better to create a budget so you can end up with a bit of savings each month. Here are the essential budget categories for home:
The category that homeowners have to spend the most money on is housing. It includes everything from mortgage payments or rent to home maintenance costs and property tax.
The second most important category is transportation because, regardless of the line of work you are in, you will have to travel from time to time. The category can include car payments, parking fees, gas, and maintenance costs.
You can’t get through a month without buying groceries, which is why it is essential to make this category when creating a budget. However, it is important not to include things such as gourmet food in essential categories.
- Utility Bills
You can put your electricity, water, and gas bills under this category. If you have cable and an Internet connection, then their bills will also fall under this category.
You can include all the types of insurance you have under this category, including auto insurance, healthcare insurance, and homeowner’s insurance.
Although most people ignore it, savings is one of the most important categories of a budget. The percentage of your income you can put in savings will depend on your essential expenses, but as a general rule, saving 20% is ideal.
Once you have set aside money for your needs, what you will have left is money for your wants. You can cut back on these expenses when you need to save more. You can include movie tickets, clothes and shoes, gym membership, and dining out in this category.
Budget Categories for Businesses
Creating a budget for your business is very important, regardless of its size. Without a budget, there’s a high chance that your business will go under very soon. But if you make a budget, you can efficiently run your company and increase your profits regularly. Here are the budget categories a business must make:
Every company has to pay its employees every month, which is why it is one of the most crucial budget categories for a business. This category includes the salaries of employees and their healthcare insurance and other expenses that the company takes care of.
- Office Space
Whether you have a small office space or large company headquarters, rent will be a considerable expense. Along with the rent, maintenance costs can also be put under this category.
It is vital to have a functioning HVAC system, Wi-Fi, and water supply in your office to provide a comfortable environment for your employees. The bills for all of these utilities fall under this budget category.
- Advertising and Marketing
A business needs to advertise and market its products and services to attract new customers. But the way companies used to promote has changed in recent years, thanks to the Internet. Keep that in mind when setting aside money for advertising and marketing.
- Equipment and Furniture
Unless you are just starting a company, you will already have plenty of equipment and furniture in your office. But it is still a good idea to put aside money for this category when you need to replace a piece of furniture or buy a new computer.
- Office Supplies
Although businesses store most of their data on computers these days, they still need office supplies such as pens and paper. Making a separate category for office supplies will help you keep track of the expense that companies often end up ignoring.
- Travel and Entertainment
Travel is an integral part of doing business because without it, it will be impossible to attend conferences and networking events or meet with prospective clients. It is also essential for a company to offer entertainment to its employees, such as arranging dinners and pizza parties. The expenses for both travel and entertainment can be listed under this category.
Whether you are making a budget for your home or your business, create categories to simplify the process. With budget categories, you will effectively manage your money every month and never become stressed because of your expenses ever again.