Personal budgeting is vital at all times. However, it is of particular importance now when signs of stagnation, rapid inflation, and rising prices of energy resources can be observed in the world economy. A well-thought-out budget with predictable costs will help you to overcome financial difficulties and maintain economic well-being.

Budget planning can be characterized by one straightforward rule – spend less than you earn. However, in everyday life, this formula does not always work because each of us has individual needs, habits of spending money, and also desires. Experts usually recommend focusing on a more detailed approach when creating a budget. Here you will find the main principles and rules to help you plan your finances and expenses more successfully.

Set your goal

Suppose you have decided to start planning your budget. There is usually a reason for it, for example, the desire to reduce regular and irregular spending, the desire to start saving money for the future, the desire to save money for a larger purchase, and many more. A clear goal, which is also expressed in a precise time frame, will be like a promise to yourself, and it will help you to determine precisely how much your spending habits will have to change to achieve it.

Forming a habit

The habit is usually formed within two months. This is when you need to pay close attention to discipline yourself in terms of spending. Try to live frugally during this time, and do not fall into impulsive purchases. After about 60 days, you will notice that not spending money becomes easier than spending!

Monitor your spending

Experts recommend regularly monitoring your cash flow to understand your opportunities for reducing spending and creating a habit of saving money. In the first three to six months, you will have the chance to understand which regular and irregular costs are in your budget and how much you can reduce them. In monitoring, it is recommended that you use a detailed table (MS Excel) or one of the applications (YNAB, Spendee, MS My money, etc.) to record and track costs by position in detail. Be sure to separate the costs in as much detail as possible, looking separately at food costs, hygiene, culture, accommodation, utility, parties, alcohol, studies and education, social media, transportation, travel, clothing, gifts, big purchases, loans, etc.) Re-evaluate your costs by positions every month to see what costs, in particular, you could reduce, thus saving more money.

Cover the basics

Basic expenses are usually those related to the regular costs of an apartment or house and financial obligations, such as bank loans. These are costs whose deadlines should not be delayed to save money. In other cases, food is also added to essential expenses, where it is often possible to review the shopping basket and choose to purchase less expensive alternatives.

Spend less on secondary goods

The previous rule leads us to the next one – spend less on those items that are not vital to survival. If you want to save money, you don’t need the most expensive shoes or a designer purse. Try to balance quality, brand, and price, putting functionality first.

Avoid lifestyle inflation

Often, if a person’s income increases, his ambitions in spending money also increase – more extensive and expensive purchases. However, if your income increases, it does not automatically mean that you need to spend more. In this case, there is a risk of putting yourself in a self-imposed rat race – you start earning more, you start spending more, your needs and financial commitment increase, which forces you to work even harder to make more, and so on. You will hit the salary and work effectiveness ceiling at some point, forcing you to live from check to check again. Therefore, continue to use your money wisely, maintaining the habit of saving. You can’t control a car’s price, but you can choose a car you can afford.

Don’t make quick decisions for the loan

If you have stabilized your income and expenses and manage to make regular savings, always carefully evaluate whether you need to take a loan for a larger purchase or if you could save a little and buy it yourself. Do not rush to take on credit obligations. In addition, you do not always need to use the maximum loan amount offered by the bank, for example, when buying a house or a car.

If you have decided to take on credit but want to maintain the habit of saving, spend more time evaluating the offers of banks and other financiers. Pay attention to loan issuance fees, interest rates, and additional loan-related costs, and choose the least expensive option.

Put at least 10-20% into savings

Do not forget to make regular savings of at least 10-20% of your net income or try to create a safety cushion of 3-6 monthly salaries. That way, if you lose your job or have a significant, unexpected expense, you don’t have to borrow more than you’re comfortable repaying. It is always better to save in a separate account from which you do not make daily payments, such as a savings account. You will also find the spending limit offered by most banks useful. In other cases, you can also make cash savings, but then special attention should be paid to the security of the place where you will keep your money.

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