This week Donegal Daily’s Financial Columnist Sean McNulty talks all things budget and gives readers the Top 20 things you should add inti your budget plan!
If you have decided to make a budget, well done! You are in the right place. Creating a budget is a great way to improve your current financial situation and provide financial freedom as much as possible in the future. For many people, having a nice bank balance gives them great financial freedom. But what should a budget contain? How do you calculate your budget? And what things items that you should include in a budget will be discussed in greater detail in this article. Although creating a budget that works for you may take a little bit of your time, having one is essential to achieving any sort of financial freedom.
What Should Be Included in a Budget?
Your income, savings, debt repayment, and general expenses should all be included in a budget.
Income
You need to consider all your income sources while calculating your total income. You can earn money in addition to your primary source of income in various ways, such as by investing or starting a side hustle. A good salary is essential for covering your living costs, but sometimes more is needed. If that is the case, you will need to either reduce expenses or plan a strategy for increasing income from other sources. Whether you are paid hourly, daily, weekly, or monthly determines how to calculate your total payment.
Savings (including retirement)
Savings goals can be short-term and long-term, such as saving for a home deposit, purchasing a new vehicle, travelling, and other similar endeavours. You can always be prepared, so you should add emergency savings to your plan. It is always early enough to begin saving for retirement, no matter how old you are when you create your first budget. Everyone has a different investment planning approach, so before starting, do some research or reach out to a financial advisor.
Debt Repayment
The ultimate objective is to live debt-free, but the only way to do so is to include debt repayment in your budget. It could be debt from a credit card, medical bills, college education, or other circumstances. Before working on the bigger, more difficult debts, try paying off the smaller ones first, or you might want to try pay off their higher percentage rate ones first.
General Expenses
Even though every person has unique circumstances that influence their spending, it is still helpful to have a general idea of what to include in a budget. Of course, the items to include in a budget will look different for each person. However, most people have certain essential living expenses in their budgets. The three main categories of expenditures that should make up the majority of your budget are as follows:
1. Essentials: These are the cost you can’t live without, like rent and groceries.
2. Savings: This could be anything from your pension to your personal savings account. Your investment funds are how much cash you will take care of every month. Since increasing your savings is the objective of budgeting, avoid drawing on your emergency fund unless necessary.
3. Discretionary spending: It is spending you do on things that aren’t necessary if you have money left over. It includes entertainment and recreation costs.
Remember: If you need more than your income to cover your expenses, you might have to reduce them to fit your budget.
Calculating your Budget
Using formulas like the 50/20/30 budgeting rule can help you take a first big leap into committed financial planning. The theory is you should divide your personal finances into three main categories and apply a percentage allocation to each as per below Essentials: 50% of your earning
Savings: 20% of your earnings
Desires: 30% of your pay The above theory is not widely contested as it is a subjective advice and generally a decent place to start. There will be some variances, that is okay but if anything else you should test this theory to see how far away from it you fit. And if you can make adjustments, what would those look like and what would that mean to your financial position overall. Below we start with the 20 most common things you should include in your budget. While some of these are considered luxuries most fit squarely into your ‘essentials’. We are not here today to critique what goes where, but what you should consider and should not […]
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