Most times, we operate with very limited income and this brings in budgeting. Budgeting is basically assigning a particular amount of money to purchase a particular amount of certain products or services. It isn’t limited to just these but that is the basic idea.
As an adult, investing should very much be on your list of actions because investing is a great way to earn passive income. However, in order to ensure that you have enough income left to invest, your budgeting needs to be top-notch, and this is the major connection between the two.
One of the most difficult times to budget is when you have a new baby, but there are certain ways to save on baby supplies and have enough cash left over to invest. Generally, in order to better balance investing and budgeting, here are a few tips to help you along.
1. Be Deliberate About Budgeting and Investing
It is really easy to blow through cash. You get paid and before you know what’s happening, half your income is already gone. Budgeting is a great way to apportion money but in order to go through with it, you need to be very disciplined and determined. The essence of budgeting is to help you determine what you would have left over after your major expenses.
This clearly implies that investing is mainly done with spare cash after expenses and savings have been factored out of the equation. Making a plan in your head to budget and invest is not enough. You need to take some form of physical activity and actually get to writing the details down. When you are deliberate about it and you take actually planned actions, you are well on your way to becoming a great personal finance manager.
2. Start With The Most Important Stuff
While budgeting, you may also need to apply your knowledge of a scale of preference. So you would basically need to sort the most important stuff first and allocate funds to them. For instance, the items at the top of your budget should comprise your basic needs as a human – food, basic clothing, shelter and utilities, and then transport.
The savings could come after this since it is necessary to have emergency funds. After you have taken care of all of these categories, you can then begin to include other stuff in your budget. If they are not pressing needs, you can take out the funds that you want to invest and use whatever is left of it on these other needs.
3. Ensure That You Are Not Owing!!
Before you even dream about investing, you must first ensure that you are completely debt-free. It is completely illogical to put your money in some form of investment while your creditors are breathing down your neck. Basically, before investing, you need to ensure that you are financially stable. This would comprise having enough money to spend on your basic needs, enough to set aside as savings as well as extra cash which you then invest.
If you are owing a debt, it should be included in your budget. If it is one that requires payment in installments, then you should take a portion of your regular income and designate it for payment very regularly. After you have cleared up your debt and you feel financially stable again, you can begin to consider investing.
4. Be Content
This may sound like a pretty strange tip but it is a very important one if you are going to succeed at budgeting and investing. There would be certain items you may plan to get which would upset your budget to an extent. It is in times like this that you would need to demonstrate self-control and a measure of restraint.
Putting aside funds for investing requires proper planning and making an “unnecessary” purchase would definitely upset that. If you would need to make such a purchase, you need to plan ahead for it so that it does not end up blowing up your budget. For instance, you could forego certain items to purchase that particular one item and your budget would still remain intact.
5. Set Financial Goals for Yourself
Why exactly are you budgeting? What do you intend to achieve by budgeting? These are questions that you need to ask yourself to keep yourself in check. Since you’re clearly budgeting to keep your finances in the green and leave enough for investing, then you would need to set certain goals.
For instance, you could decide that in 6 months, you want to invest at least $10,000 in some enterprise. This would help you determine the amount you need to set aside from each paycheck and teach you to cut back on certain expenses. However, you need to set a very realistic goal that you can achieve with only very minimal stress.
6. Don’t Use the Same Pattern every Month
Your budgeting for different months is definitely not going to be uniform. There would be some months when you would need to spend extra and others where you would spend less. Designing your budget to be unique to a particular month would easily make you achieve your financial goals a lot easier.
For months when you do not have so many expenses, you would have more cash left over for savings and investment while cash gulping months would provide less. However, given that you have both high and low periods, they would eventually balance out so that you are still on track.
7. Monitor Your Progress
When you’re budgeting and investing, it is essential that you monitor your progress from time to time. You need to look back on the budgets that you have made and check how effective they have been.
This would help you know whether you need to make any changes or if you are doing just fine. You should also commend yourself for whatever progress you have made and if possible, you could do a lot better. Similarly, you should monitor the progress of your investments, and ensure that they are actually on the path to yielding profit so that you don’t end up burning cash.
Everybody wants to invest but nobody is ready to put in the effort that it requires to actually do it the proper way. It doesn’t have to be very difficult and this article clearly explains that.
Given these tips, you’re definitely on your way to becoming a pro at budgeting and investing. And as a final tip, it is never too early to start contributing towards a comprehensive health plan, it’s all about covering your bases after all!