Your Budget, Your Lifestyle

Living beyond your budget is an issue many people struggle with, especially in a society where everyone is keeping up with trends.  As a result, personal finance experts recommend that your budget should determine your lifestyle and without one, it is quite easy to live beyond your means of income. A budget serves as an agenda for future income, savings and expenditure and it will ultimately help you reach your financial goals. The following steps can guide you in creating or reviewing your monthly budget:

Determine your income 

To set a monthly budget, you must initially add up all sources of income such as salaries, pension, spouse’s income and so on. If you get a salary, be sure to use your take-home pay rather than your gross pay. Taxes are usually taken out automatically, but if they’re not, include them as an expense.

Review your expenses

The best way to do this is to track your monthly expenditure and group it into fixed and flexible. Fixed expenses like rent or insurance payments are constant from month to month. However, flexible expenses such as food or entertainment may vary in different months. It is advisable to take a three-month average of your variable expense and ensure that your variable cost is within the average monthly figure.

Calculate the difference 

Once you’ve totaled your monthly income and monthly expenses, subtract them to get the difference. If the figure is positive, it indicates that you have succeeded in fitting your lifestyle into your budget. A negative figure implies that there is a need to trim your expenses in order to live within your means. It may also mean that you are steadily going into debt and there is an immediate need to cut down your expenses. This is an easy and common pattern to fall into, and one that requires some planning, discipline and conscious effort to reverse the debt curse.

Revisit your needs versus wants

What you want versus what you need is entirely different. You must honestly evaluate your current financial situation and cut down on your wants. You may start by making two lists – needs and wants and review the expenses you need to cut down to fit your current budget.

The 3-T’s – Track, Trim, Target 

Once you start tracking your expenditure, you may find out that you spend a lot on food for example, or other flexible expenses. Some of these costs are easy to trim and cutting back on them is usually easier than completely cutting out the cost. Being realistic and rational with your expenditure will also help you to make room for unforeseen costs. You must realize that your financial freedom will depend entirely on your effort and discipline.

There are success stories of those who have been religious about their budgets, and improved on their finances as a result. The beauty of implementing these key points is that they bring you an inch closer to living within your means and achieving your financial goals.