How to create a budgetplan
If you read this article you probably already know why budgeting is extremely important in order to reach your financial goals. And if you want to budget your money, you better have a good budget plan for it, otherwise, it won’t work. So if you want to start budgeting your money to reach these goals. I am going to tell you what must include in your budget plan in order to consider it a solid plan. I also will give you a step by step guide to creating your budget plan and establish it successfully.
Minimize your spendings
The most important thing in order to reach the goals you set yourself is to extant the gap between your earning and your spendings by minimizing your spendings. If you have no clue how budgeting will help you with that, it is better if you read this article about budgeting first.
Must-haves for a good budget plan
Now we start off with the items that must be included in your in budget plan. This is because you want to get specific information out of your plan in order to analyze your behavior and change it. Or these items are included in your plan to motivate you further to reach your goal.
The first thing you definitely need is a comparison between what you planned and what you reached. This is extremely important because it helps you with seeing where you don’t need to change your behavior and where you had problems with sticking to your goal.
If you spent more than you initially planned it is important that you overthink why this happened. It could be that you have forgotten something when you made your plan. Like you listed your abonnements and missed out on your fitness club membership.
In this case, you definitely need to adjust your goal and higher it.
The second thing could be that you spent more on food than you first though because you have eaten out a lot.
Then you need to change your habits and cook more often at home.
But it also can be that you spend less than you wanted. In this case, you can be proud of yourself. You should definitely have a lock on this category in the next month.
And if you spend significantly less than you thought the whole time, you should lower your goal.
For me, the best way to implement this in my plan was to write down my goal in every month of my plan and undenied that I wrote how much money I actually spent this month. Then I was easily able to see if I spent too much.
Your savings rate determines how much time you need to become financially free. If you want to know more about your savings rate, you should read this article where I talk about it:
Your savings rate shows you how much percent of your income you didn’t spend. And if you have a consistent savings rate it can tell you when you’re can retire. Therefore you should first set your goal.
If you want to retire in less then 10 years you need to have a savings rate of around 68%.
I implemented the savings rate in my budget plan by calculating my savings rate for every month so I can see if I overspend or not for every month. This helped me with getting really into the details.
If I saw that I didn’t meet my savings rate I planned based on the goals I set for each category I searched for the one with the most impact on my savings rate and tried to think what went wrong there in the last month.
And you also need to calculate your savings rate for each year, so you can get the average. This might be complex if you work with paper, that’s why I used to work with excel to make my budget plan.
The last really important thing that should be in your budget plan in order to motivate you is your net worth. Here you can use the planned vs. reality thing I talked in the first point above.
If you set your exact gaols on how much you want to spend, you can see how much you save each month. If you now use this money to invest it, you can see when you are going to have how much money if you stick to your plan.
This will give you an extreme boost in motivation.
Statistically, you likely have credit card debts. If you want to know why you should pay for those credit card debts first, I wrote an article about that topic which you should read.
If you can start investing right away it is amazing to see how much money you will have after only a year. For me, this experience was mind-blowing, and when I kept spending less than I thought I would I saw that I saved more than I thought I would have at this point.
And then I realized that I will be above the insane amount I calculated. Since then to calculate the expected net worth is necessary for me in every budget plan.
Steps to create a Budgetplan
The first step you need to take to create your budget plan is to make different categories for your earnings and spendings. This is individual for every person.
But categories that will fit in the most budget plans are rent, food and groceries, mobility, etc. Group everything up that comes back to one habit of you.
If you don’t eat out very often you can put our spendings from this in the normal food categories. If you eat out often and you go to a lot of parties it may worth it to make an extra category for going out.
Because you don’t know exactly how much you spend when you start your plan you have to estimate.
If you do this, it may be easy for your fixed costed cost like rent but harder for something like food. You will often think that you spend less than you actually do.
But it is also possible to track your spendings first before you start with your budget plan. Therefore you will have to write every penny you spend down for about a month. Based on this you then can set our budget goals.
Another problem comes if you have spendings that arent evenly spread over the year.
The best example of this is a vacation. You spend a lot of money on them, but only once or twice every year. But if you break this down in monthly spendings you can save a set amount up over the course where you don’t make the vacation. And then spend everything when you have holidays.
If you want to spend $600 for vacation per year. You have to save up $50 per month and act like you spent this money. You can either do this by creating a sub banking account if that is free for you. And the send their $50 every month automatically.
Or you can withdraw it every month and save it up in cash. Th.s is perfect because your big and heavy spendings re evenly spread over the year and you can calculate a lot easier with them.
The next step after you know know how much money you want to spend per month. And on what is probably the most important one.
You have to stick to your budget.
Sounds really easy, and it can be really easy if you do it right.
There are several methods on how to stick to your budget. But most important is that automate it or/and establish it as a habit. Because no one wants to think about their budget the whole time. You just want to go one with our life as usual and save money as if you wouldn’t do it.
But if you need to calculate your budget the whole time, that won’t be possible. Therefore you need a system that runs pretty much automatically after you once set it up.
If you know have a system that makes it easy for you to stick to your budget you must track your spendings. You need this data to analyze your spending habits with the tool that I talked about above.
If you don’t know how much you really spent you can not adjust your goal further to fit your needs. If you use a bad system to budget and you don’t know how much you spend. Chances are that doesn’t change anything on your spendings.
Therefore you either have to know how much you spend based on the system you use to track your spendings. Or have to write it down every time you spend some money.
You could use your smartphone for this and just pull it out to type thinks quickly into excel.
Or you can collect your receipt for an entire month. And write everything down in a book if you are more on of the paper type guys.
You also can go through your spending history in your bank account.
For me, it is the easiest to just type in everything to excel with my phone. I have it with me all the time and things will synchronize with my PC automatically. But obviously, it depends on what is most handy for you.
And if you have all this up and running you must follow the tips I gave you earlier. You already have a goal set and you know how much you spent, so have a look if you meet these goals or if you have to adjust them.
You know that your savings rate is simply the amount of money you saved. Divided by the amount you earned, so use that knowledge. Calculate your personal savings rate and compare it to your set goal.
If you still don’t know why your savings rate is extremely important. Feel free to check out this article where I explain everything necessary:
Then you use this valuable data also to calculate your net worth to see if you are on course with your set target. If you have done all this your budget plan will be extremely valuable for you. It will save you a lot of money and change your life almost completely if stick to it.
The last tip I can give is read around on this blog in order to find useful tips about what you should do with the money you save know thanks to my tips.
Thanks for reading!
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