PNS's Thoughts of the Day 3: Financial Freedom Calculator - Building a Budget and Save Money Live Better
The Freedom That a Budget Can Bring
Many view a budget as a restrictive financial blueprint that takes away their freedom to indulge in luxuries and pleasure, but in reality, a budget is actually a powerful tool that can drive you towards real financial freedom. Including a budget in your life It’s like calculating by financial freedom calculator to save money live better, you have the freedom to manage your expenses effectively and at the same time indulge in luxuries and pleasure, and work towards your long-term financial objectives with dedication.
A lot of people have a problem with budgeting, simply because they don’t accurately monitor their expenses in a meaningful manner. They receive a handsome salary credited in their bank accounts at the beginning of each month, but yet, at the end of each month, they have little to no cash in hand. Many people have a lot of financial burdens and debts, and therefore, don’t even know where to start in terms of fixing their financial life.
The most important key to successful budgeting is individuality; your budget must specifically be designed to serve your individual life circumstances, your values, and your individual objectives. In case your budget feels too constrictive, then a high chance is that you will drop it altogether in frustration. On the other hand, in case your budget is too relaxed and unorganized, then it will not serve you with a structure for achieving meaningful financial success.
Learning to build a budget that actually works for you can make your life a lot easier and secure your financial future in a healthy manner. In the following chapters, I will introduce simple and effective techniques designed to enable you to build a budget that helps you save, manage your expenses, and in the long run, drive yourself towards a successful life with financial independence. It looks like calculating math which makes our lives better. And we called it to “save money live better.’’
Gaining an Understanding of Where You’re at Today
To build an effective budget, it is important first to understand your current financial position. That involves taking a little time out to closely review your earnings, your expenses, and your overall spending behavior and habits. Most times, a problem arises simply because many don’t have an awareness about their expenses in terms of luxuries and pleasure, and such expenses can soon become a big source of financial burden and tension.
To help you assess your financial position, below is a simple and effective tool designed to shed a light over your financial picture and make your overall financial picture easier to understand:
List Your Sources of Income: Write down all your monthly incomes, including your salary, freelance work, part-time jobs, and passive sources of incomes such as dividend payments and rentals.
Track Fixed Costs: Fixed expenses are recurring expenses that don’t vary monthly, such as mortgage/rent, utility bills, loan payments, and insurance.
Determine Variable Costs: These expenses vary monthly, such as grocery expenses, eating out, entertainment, and retail purchases.
Check for Subscription Services: Most forget about little subscriptions such as Netflix, a fitness studio, or meal delivery programs. Over a period of time, these can add a significant expense.
Review Historical Spend: Looking at your bank statements for 3-6 months can reveal a lot about your spending habits. Apps such as Mint or YNAB can make it easier.
Once you have gathered this information, you will have a picture of your financial state. This is an important part of creating a budget, for it is impossible to make an effective budget when not knowing where your money is being spent first.
Set Clear Financial Objectives
A budget is not effective when not having a purpose. Your financial objectives will inform your spending plan and motivate you to follow through with it. Financial objectives give direction and make your budget work towards your individual and financial objectives.
There are two categories of financial objectives:
Short-term objectives: Short-term objectives are objectives for a period not exceeding one year, such as a vacation, a small credit card payment, or an emergency fund.
Long-term objectives: Long-term objectives have a long-term timeline, such as several years, even decades, such as a down payment for a house, planning for retirement, or investing for wealth.
To effectively set financial goals, apply the SMART principle:
Specific: Be definitively specific about what you’re working towards (for example, “Save $5,000 for an emergency fund” versus the general “Save money”). That level of detail will allow you to direct your efforts in a focused manner.
Measurable: Monitor your progress in such a manner that you can motivate yourself in between. By tracking how far you have reached, you build a sense of achievement that inspires continued motivation.
Achievable: Set objectives that are feasible and can be accomplished in relation to your current expenses and earnings. That way, your objectives will not only be ambitious but feasible enough not to cause undue stress.
Relevant: Set objectives that align with your values and overall life situation. That harmony between your objectives and your values will make them easier to work towards.
Time-bound: Set a definite target date for when you will have achieved each objective. That creates a level of urgency and keeps your timeline in view.
Well-established objectives will make budgeting a meaningful and even exciting activity, for you will have a definite idea of precisely what you’re working towards.
Select a Budgeting Technique That Serves You
The key is to understand that no single budget will work for everyone perfectly. Everyone has individual spending habits, individual priorities, and individual lives. That most effective budget will be one that works for you consistently over a period of time.
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Here are four alternative budgeting techniques that have worked for many:
50/30/20 Rule: In this technique, divide your earnings into three categories for easier management: 50% for necessities (housing, utility, food, and medical care), 30% for luxuries (entertainment, shopping, and restaurants), and 20% for savings and payment of debts. 50/30/20 Rule works best for a budgeting system that is simple to understand and flexible in use.
Zero-Based Budget: In a Zero-Based budget, each and every dollar earned is earmarked for a specific purpose at the beginning of the month. By the end of the month, your earnings minus expenses must equal zero. Zero-Based budgeting works best in curbing overspending, but it takes careful tracking of all expenses.
Envelope System: In this cash budgeting system, one puts money in actual envelopes earmarked for specific expense categories (e.g., grocery and leisure expenses). Once one spends out any envelope, one stops spending in that expense category at once. That system works best for one who tends to overspend in discretionary categories.
Automated Budget: Most use budgeting software such as Mint, YNAB (You Need A Budget), or PocketGuard to monitor expenses and make savings automatic. Automated budget works best for one who prefers a computerized system and appreciates a hands-off manner of managing one’s expenses.
The most effective budgeting tool will ultimately rely on your specific life situation and individual expenses.
Adjust Spendings Without Feeling Constrained
Perhaps one of the most common misconceptions about budgeting is that it involves a complete sacrifice of any kind of enjoyment in your life. In fact, budgeting is actually about spending your money wisely and making smart financial choices, not about depriving yourself of everything that brings pleasure.
Here’s how you can save unnecessary expenses effectively and not deprive yourself at all:
Identify Wasteful Spendings: Do you have a routine of buying coffee every morning when driving to work? Do you have subscriptions that no longer serve any purpose? By cutting out these little but significant expenses, you can save yourself a hundred dollars in a matter of years.
Replace Costly Habits with Inexpensive Habits: Instead of having lunch out three times a week, try meal preparation at home to save yourself a bundle. Instead of shelling out for a fitness club, try working out at home and getting the same benefit for free.
Use Discounts and Cashback Apps: Spend a little time searching for bargains, use coupons whenever you can, and utilize cashback programs to save even more.
Cut Back on Impulsive Buying: To stop yourself from buying impulsively, use the 24-hour rule—if you see an item that you covet and have an urge to purchase, stand off for 24 hours and then make a decision about whether to buy it.
Create a Leisure Allowance: Instead of cutting out leisure activity altogether, make a real allowance for leisure activity, such as seeing a movie or visiting a mall.
A budget must both work and be real, allowing for enjoyment in life and at the same time financial security in the future.
Put Saving First
Many people have a tendency to save as an afterthought, an expense that comes in only when it seems that enough money is left over at the end of a month. Instead, best practice would involve converting savings into a non-variable expense and prioritizing it over all discretionary expenses, and having it become a part of your budgeting routine. So if you get financial freedom you need to save money to live better.
How to make savings easier:
Pay Yourself First: Set recurring payments that will move money into your savings with each paycheck received, and make a point of treating it as a non-variable expense.
Build an Emergency Fund: Set a target to save an amount that will cover 3-6 months’ worth of expenses, a financial safeguard to allow yourself to ride out life’s curveballs and twists and turns.
Make Long-term Gains: In order to effectively build wealth over a long period, it is important to wisely invest in a balanced portfolio consisting of a mix of stocks, regularly save for your future retirements, and explore the option of buying real estate. By putting your savings first, in fact, first and foremost, you build a strong base of financial security, and in turn, remove any fears and concerns that you have regarding your future well-being.
Monitor, Adjust & Persevere
It is important to remember that budgeting is not a one-time activity; in fact, it is a living and changing activity that necessitates constant updating and checking. Hence, taking a practice of monthly checking of your expenses, or even checking them on a week-by-week basis, in case that works best for your style, is a practice considered advisable. Ensure that your budget is updated in relation to significant life events such as a new job, new expenses, etc., and similar events relevant to your life. In order to make it a practice for yourself to maintain continuity in your budgeting practice, make an attempt to make the practice simple and simple, and in turn, less stressful for yourself. Over a period of time, even minor and continuous actions in relation to budgeting can have significant positive effects in your financial life overall.
We Finally Say: In Charge of Your Finances
It is important to remember that budgeting, in fact, doesn’t necessarily mean restriction; in fact, it can actually serve as a gateway to living life your way. By following a budget practice that best complements your individualistic life, not only can you save, but indulge in your passions, and in fact, enjoy financial security in your life in a larger manner. Keep your practice simple, start small, and make a point to celebrate your success in between, and practice it in a relaxed manner, enjoying your journey, and moving steadily towards financial security in a peaceful manner.
