![]() Categorising Your ExpensesĪfter analysing your financial situation, now you have a grasp of how much you make, where you spend the money, and how you are servicing your debt.Ĭategorizing your expenses is a proactive step that forces you to put value to your expenditure. Read Also: Budgeting 101: What to Include in Your Budget 2. It is prudent that you take that into consideration. Without paying attention to the debt, the interest can siphon money from your pocket without your knowledge. You get to ask the importance of these impulsive expenses vis a vis your ultimate financial goal.Ĭrucially, you also have to analyse the debt obligations that you might have. Most people living hand-to-mouth find that they have a lot of impulsive engagements. What are your expensive commitments? What commitments seem not expensive but they accrue significantly over time? But it also goes deeper to investigate the relevance of given expenses. Secondly, analysing your financial situation is about studying how you spend your money. Therefore, analysing your financial situation is crucial so that you can clearly define what enough money means to you. ![]() You might be making a million a month and you will be broke by the end of the month if you stuck up your expenses beyond a million a month. The phrase living hand to mouth is thrown around to describe those who do not make enough money to sustain their consumption. To assess your financial situation analyse how much money you make and most importantly how you spend it. The same goes for your budgeting.Īssessing your financial situation paints a clear picture of how things are and therefore informs the steps that will follow. You want to understand at the moment where things stand. The starting point for any plan (which is what a budget is) is assessment. Read Also: The Ultimate Personal Budgeting Guide 1. So where do you start to create a personal budget? Such a deeper understanding of the purpose of a budget is more sustainable even in the days that the sacrifices take a lot of effort to effect. Going for a holiday might seem impulsive and extravagant, however, if the holiday is a needed mental break that will eventually improve your quality of life, then every moment you stick to the budget you will be choosing your well-being above the momentary impulsivity. The reason for budgeting is mostly so that you can attain a given financial goal.īut the more pertinent question to ask yourself is, what does achieving the financial goal mean for you? What does it do for you?įor instance, you might be saving to go for a holiday. Therefore, to create a budget that you will actually follow you need to understand why you are budgeting. Discipline and sacrifices are not the most fun things to do. While this initial motivation is a great starting place, in order to have effective budgeting you will need much more than motivation. Your budgeting expedition might be an emotional undertaking after listening to an inspiring podcast or reading an article that challenges you to budget. Understanding the Purpose of a Budgetīudgeting for the sake of budget is a futile activity. In this article, you will learn the basics of creating a personal budget.
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