Essential Tips for an Effective Budget Plan

By Olu Bunmi

January 10, 2024   •   Fact checked by Dumb Little Man

essential tips for an effective budget plan

Money makes the world go round. We work for money so we can afford a high quality of life; that’s just how it is. Given money’s importance, you don’t want to be blind to your own financial realities.

With proper planning and budgeting, you can get the most out of your hard-earned money, and you can attain a certain level of security where you are aware of your revenues, expenses, and general financial situation.

This quick guide will help you better understand how to create budget plans that work for

Time and Money

Typically, you’ll want to budget on a monthly and yearly basis. Income and expenses are likely to change after a year, so longer-term budget projections aren’t very useful for much other than getting a very general idea of what the future may look like.

A budget plan template is a great way to visualize the complexities of your budget over time. Tools like budget planner books can help organize your monthly and yearly budgets in a way that makes sense.

Benchmarks of a Realistic Budget

Obviously, you want to earn more than you spend and save something, but that’s not as simple as it sounds. As you put your budget together, it is necessary to be brutally honest with your expectations.

At the very least, a realistic budget satisfies all of the following:

  • Accounts for all costs and revenues
  • Is not overly generous
  • Dedicates a certain amount of money to savings
  • Accounts for potential emergencies and surprise costs
  • Includes plausible costs for food, shelter, and utilities
  • Determine Your revenue

What are your income sources, and how much do you expect to receive? When and how often are you paid? Your boss may have promised you a raise in a month, but until that actually happens, you should not budget for the future as if you’re certain to get that raise.

Do you work full-time, part-time? Are you a salaried employee? If you work hourly and are not a full-time employee, assume that you won’t get the best hours at any job you work at. This way, you’ll have budgeted for the worst-case scenario.

If you end up getting more hours, that’s great! Just be sure to quickly cycle any extra money into your budget and put it towards something productive. The best way to get ahead is to invest in yourself by clearing your debts and adding to your savings.

Figure Out Your Costs

budget planning

To put it simply, your cost is your expenses. In order to better understand your costs in the context of your entire budget, it’s important to break your costs down into fixed costs and variable costs. With this information, you can better understand your cash flow and identify points where you can save.

Fixed Costs

Your fixed costs are the costs that are recurring and consistent.

Major fixed costs include:

  • Rent or mortgage payments
  • Health insurance payments
  • Vehicle payments
  • Property taxes
  • Car insurance (barring accidents or changes in rates)
  • Internet bill
  • Student loans and other loans

Your fixed costs are unlikely to change in the short-term, but may in the long-term. For a yearly budget, it’s safe to assume these costs will be stable. If you rent on a monthly lease, then your rent may change over the year, so budget for an extra 20% for your total yearly rent just in case.

Variable Costs

These are the costs that are set to change each month.

Variable costs are made up of essential and non-essential costs. Essentials costs are the things that you really need, and non-essential costs are the extra things that you can securely live without.

Essential costs include but are not limited to:

  • Gasoline consumption
  • Home heating
  • Phone bills
  • Vehicle maintenance
  • Home maintenance
  • Food and groceries
  • Medical treatment and copays

Here are some examples of non-essential costs:

  • Subscriptions
  • Extra clothing
  • Entertainment
  • Eating out
  • Snacks
  • Vacations and trips

See Also: How to Budget Using the 50/20/30 Rule

Don’t Forget to Budget for Emergencies!

No one prays for an accident, but accidents happen, and you want to be in a position where you’re financially covered. After initial and essential expenses, put at least 20% of your income into a savings account. If you total your car or get injured and can’t work for a month, you’ll be glad that you have some savings to fall back on.

See Also: 5 Financial Emergencies Everyone Must Be Prepared For

Cutting Costs

effective budget plan

Your non-essential costs probably bring you a lot of joy, but these things cannot take priority over your essential costs. It’s easy to cut some of these costs without sacrificing your quality of life.

Trying to save money? Instead of dining out twice per week, try dining out once every other week and cooking a luxurious meal at home. You’ll save money, and you’ll have a great culinary experience in the comfort of your own home.

Groceries are an essential cost, but by making adjustments to your habits and consumption, you can decrease these costs. Instead of buying canned soups and premade meals at the grocery store, you can cook these things cheaper. Instead of going for the name brand, buy the store brand. They’re almost like the exact same thing, but it costs less.

Streaming is all the rage, but those services can add up. Oftentimes, people have so many services that they go for days, weeks, or months without using them, but all the while, they’re still paying! Honestly examine your app and subscription use. If you find that you hardly use that streaming service, unsubscribe. That $15 per month will really add up.

Those are just a couple of examples, but you can use the same logic to cut most of your non-essential costs and some of your essential costs

The Bottom Line

Cutting costs is good, but try not to cut costs that will lead to poor health outcomes. You can reduce your grocery expenditures, but you shouldn’t starve.

If you’re cutting all of the costs that you can, but you still aren’t making enough money, it’s time to look at your options. Some government-assistance programs may be able to help. Family members, charities, or food pantries can ease some of your food costs if you’re in a rut.

Your finances can help you get the life you desire if you plan. What useful tips and tricks help you budget towards your life goals? Let us know in the comments.

Olu Bunmi

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