First of all, let us start by defining what a budget is. A budget is a plan that helps you handle your money. It shows how much money you have (your income), how much you need to spend on different things (your expenses), and how much you can save or use for other things (your savings). 

A personal budget is a plan you put for yourself to manage your spending for a defined period of time, usually one month. Having a budget can help you make smart decisions about your money and avoid problems like spending too much or running out of money.

Why do you need to budget?

Budgeting allows you to become more financially stable and more in control of your spending habits. By tracking expenses and following a plan, having a budget makes it easier to pay bills and debts on time, save money, and have emergency funds. 

To create an effective budget, start by understanding your financials:

• Stable income, including salary or any other consistent sources of income
• Identify any additional sources of income if applicable, such as freelance work or investment returns
• List down your fixed expenses, such as rent, debt payments, utilities, remittance, phone bills
• Account for unplanned expenses or variable costs like groceries, transportation and entertainment. 

By having a clear picture of your income and expenses, you can create a realistic budget that aligns with your financial goals and priorities.

It doesn’t matter how you track your expenses, but it is important to have it documented whether on a budgeting book or an excel spreadsheet or on any platform that enables you to accurately revisit and update your budgets to help you achieve your financial goals.

Proven methods for better budgeting 

The popular  50/30/20 Rule is a budgeting approach that is easy to understand and can be a highly effective way to reduce non-essential spending. It provides a simple yet effective framework for budgeting and managing money wisely. It divides expenses into three main categories, needs, wants and debts and savings. 

• 50% for Needs: Allocate 50% of your income towards essential needs such as housing, utilities, groceries and transportation. These are the necessary expenses that you must cover to maintain a standard of living.
• 30% for Wants: Keep 30% of your income for discretionary spending or wants, including entertainment, travel, shopping, and non-essential purchases. 
• 20% for Savings and Debt Repayment: Dedicate at least 20% of your income to savings, investments, and debt repayment. This includes building an emergency fund and paying down debts such as credit card balances or loans.

While the 50/30/20 rule may not be suitable for every individual, its underlying principle remains universally applicable. It’s crucial to keep in mind that budgeting plays a vital role in saving money. By gaining a clear understanding of your financial situation and spending patterns, you can pinpoint areas for improvement in your expenses and increase your savings potential.