Chapter 3: Budgeting Basics

The foundation you build now will play a role in your financial success later

Using budgeting basics to get your financial life in order takes time, determination, and focus.

If you’re like many people, your financial situation resembles a roller coaster ride with many ups and downs, and sometimes what feels like a complete drop-off that takes your breath away!

In most situations, there are far more down periods than up ones.

Would you believe me if I told you that your position could be much better than it presently is?

Yes, you should because it is true!

Many individuals put their own financial success on hold because of a negative belief that they have.

They may believe that success is unattainable, so they make it impossible for themselves.

The mind has a tremendous amount of power through visualization and believing what it is told.

Therefore, while working toward your financial independence, think positively and believe your future is a world of opportunity.

Perhaps you believe that it takes a huge amount of work and time to succeed financially.

This may not be the case at all.

If you are committed and set goals to work toward, you will create your own success one step at a time.

However, it’s crucial you understand that creating a budget is the first and most essential step toward financial independence and the opportunity to step off the financial roller coaster for good.

The following chapter will go over the basics of creating a budget.

This chapter also includes recommended guidelines and budgeting advice to help you establish a solid foundation to build upon.

Budget basics

Before you can become financially successful, you must first understand a few things.

We’ll start with the fundamentals of creating a budget.

These essential components will form your foundation and build a strong base to carry into the future.

Understanding these budgeting basics, also known as fundamental principles, is a key factor in determining your success in starting and following a budget plan.

The following concepts are the most important to know.

Keep in mind each concept will be covered more in-depth in future chapters.

Determine what your current financial situation is

If you want to create a budget that works for you, it’s critical to first figure out what your present financial position is.

Because of this, you must be honest with yourself at all times, no matter how unpleasant it becomes.

This is generally the hardest part for most people just hopping on the budgeting bandwagon.

You can’t make your situation appear better if it’s terrible.

Face the facts then commit to making them better.

You have taken the first step by exploring the budgeting basics to get started.

It is up to you whether you use your financial situation as a motivator to work your way out of it or let it continue to create stress and challenges in your life.

Individuals seldom alter their behaviors until there is a reason to do so.

Understanding your present financial situation might be the incentive you need to make the necessary changes that must be made if you truly want to experience financial freedom.

What does your financial future look like?

What do you see in your financial future?

Is it exciting and filled with opportunity?

Or is it stressful and feels like the roller coaster ride with numerous drop-offs that put knots in your stomach.

What does your financial future look like if you keep doing what you have been doing and don’t create a budget?

Will you continue to struggle with managing your money?

Will the decision to not move forward with a budget affect other people in your life, such as putting your family in tough situations they will struggle to overcome?

Do you have enough money saved to pay your living expenses for 6-12 months if your income were to unexpectedly stop, or even have $1000 saved in an emergency fund?

Visualize each potential scenario and use them as motivation to get your finances under control using the budgeting basics to establish a budget and get excited about your future!

The repercussions of tough financial situations can be hard to think about and we want to believe it will never happen to us, but there is no guarantee until we make a turn and make the conscious choice to face our situation head-on and choose to change it.

Calculate how much money you’ll need

Financial goals are an essential component in the budgeting basics process.

They help you keep track of your finances so you stay on track with moving forward.

Tips for setting financial goals:

  • Set a broad objective rather than a precise one.
  • Instead of attempting to pinpoint an exact figure, aim for a wide range.
    • This number will serve as your yardstick for measuring your income.
    • It’s almost certain to drive someone crazy and leads them down the road to failure if they try to pick an exact amount.
    • Having a wide range is significantly more advantageous since it tells someone when they pull in more than they anticipated while also letting them know if they fall behind and bring in less than what was expected.

Keep your goals in mind

When attempting to make a budget for yourself, it’s critical that you remain realistic and keep your present situation in front of you.

The following tips will give you a headstart on creating a successful budget:

  • Make a reasonable budget you can follow rather than a complicated one that likely cannot be followed.
    • If you set yourself up for failure, you will talk yourself into believing budgeting does not work and will likely give up, when the only problem is the budgeting basics were not followed.
    • Keep in mind that as time goes on, you’ll have to create numerous budgets as your financial health continues to improve.
  • Start with a budget that is simple to manage.
    • Once you’re able to keep this spending plan without difficulties, it’s time to advance to more difficult and advanced budgets.
    • Soon, you’ll be managing your money with ease and the rewards of financial freedom will be at your fingertips.

Tips to maintain a personal budgeting outline

In the budgeting basics plan, the first activity is to complete the monthly expenses exercise. This is a list of the monthly obligations you have and the specific cost of each one.

Creating a tracking system by closely examining each bill and expenditure over a three-month period is the most accurate way to create this list.

It is imperative to include all expenditures, such as fixed responsibilities, recurring obligations, activities, and any other sort of monthly expenses that can be accounted for in this budgeting procedure.

When complete, the data is used to create a realistic and practical budget that can be easily followed without being too restrictive.

This step of budgeting basics is also a method to instill discipline and it will be helpful as you progress into a more demanding budget.

What’s next?

You are prepared to overcome the common budgeting pitfalls in the previous chapters, as well as learned the fundamentals of budgeting. Also, we covered budgeting basics and how important it is for financial freedom.

Chapter 4 will show you how to stop overspending your income so you are prepared to start creating a personal budget.

Let’s dive in!

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