When it comes to budgeting and saving, we start planning the things that are on our list. Budgeting is necessary to prioritize our spending and focus on the things that are most important for us in the future. 

Similarly, budgeting helps you to make realistic assumptions about your yearly income and plan for the financial freedom to start your desired work in the long run. Also, for the online casino enthusiast, budgeting is essential to manage the casino expenditures and do sensible gambling. 

Whether you are a novice or you have some experience in this regard, this article will help you to manage your money wisely. Here we present the ultimate guide to budgeting and saving through some easy and practical steps. 

• How does Budgeting Affect Your Savings?
• What are the 5 Steps to Creating a Budget?
• What are the Basic Reasons for Saving Money?
• How much Money Should you have in your Savings?
• What is the First Thing you Should do with your Money?

How does Budgeting Affect Your Savings?

Budgeting is the most basic and  the most effective tool for managing your money.  Yet, most people avoid doing it because it is additional work, much like cutting your lawn or fixing the roof.  Budgeting also connotes that you have to give up and stop yourself from enjoying stuff.

Read Also: How to Budget for big Expenses

What budgeting actually does is clearly show you how you allocate your money and present you the choices on what stuff to enjoy – based on your financial limitations.  It will save you the grief of overspending and being too much in debt. Budgeting does not stop you from enjoying stuff, it ensures that you enjoy stuff when you want it.

Although budgeting is indeed more work, it pays off with many life-enhancing benefits:

1. It Helps You Keep Your Eye on the Prize

A budget helps you figure out your long-term goals and work towards them. If you just drift aimlessly through life, tossing your money at every pretty, shiny object that happens to catch your eye, how will you ever save up enough money to buy a car, take that trip to Aruba, or put a down payment on a house?

A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. OK, so it may hurt when you realize that the brand new Xbox game or the gorgeous cashmere sweater in the store window doesn’t fit into your budget.

But when you remind yourself that you’re saving up for a new house, it will be much easier to turn around and walk out of the store empty-handed.

2. It Helps Ensure You Don’t Spend Money You Don’t Have

Far too many consumers spend money they don’t have—and we owe it all to credit cards. As a matter of fact, the average credit card debt per household reached $7,104 in 2019.

Before the age of plastic, people tended to know if they were living within their means. At the end of the month, if they had enough money left to pay the bills and sock some away in savings, they were on track. These days, people who overuse and abuse credit cards don’t always realize they’re overspending until they’re drowning in debt.

However, if you create and stick to a budget, you’ll never find yourself in this precarious position. You’ll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Sure, crunching numbers and keeping track of a budget isn’t nearly as much fun as going on a shameless shopping spree.

But look at it this way: when your spend-happy friends are making an appointment with a debt counselor this time next year, you’ll be jetting off for that European adventure you’ve been saving for—or better yet, moving into your new home.

3. It Helps Lead to a Happier Retirement

Let’s say you spend your money responsibly, follow your budget to a T, and never carry credit card debt. Good for you! But aren’t you forgetting something? As important as it is to spend your money wisely today, saving is also critical for your future.

A budget can help you do just that. It’s important to build investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your IRA, 401(k) or other retirement funds, you’ll eventually build a nice nest egg.

Although you may have to sacrifice a little now, it will be worth it down the road. After all, would you rather spend your retirement golfing and taking trips to the beach or working as a greeter at the local grocery store to make ends meet? Exactly.

4. It Helps You Prepare for Emergencies

Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or injured, go through a divorce, or have a death in the family, it can lead to some serious financial turmoil.

Of course, it seems like these emergencies always arise at the worst possible time—when you’re already strapped for cash. This is exactly why everyone needs an emergency fund.

Your budget should include an emergency fund that consists of at least three to six months worth of living expenses. This extra money will ensure that you don’t spiral into the depths of debt after a life crisis. Of course, it will take time to save up three to six months’ worth of living expenses.

Don’t try to dump the majority of your paycheck into your emergency fund right away. Build it into your budget, set realistic goals and start small. Even if you put just $10 to $30 aside each week, your emergency fund will slowly build up.

5. It Helps Shed Light on Bad Spending Habits

Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Do you honestly watch all 500 channels on your costly extended cable plan? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and re-focus your financial goals.

6. It’s Better Than Counting Sheep

Following a budget will also help you catch more shut-eye. How many nights have you tossed and turned worrying about how you were going to pay the bills?

People who lose sleep over financial issues are allowing their money to control them. Take back the control. When you budget your money wisely, you’ll never lose sleep over financial issues again.

Of course, this is just the tip of the iceberg. There are countless other advantages of following a budget. So what are you waiting for? Time to start budgeting!

What are the 5 Steps to Creating a Budget?

One of the most important steps to achieving financial success is creating a budget. But what’s even more important than creating one is sticking to it. Here are five things you need to know to create a budget that works for you.

1. Find out how much money you’re managing

In order to create an effective budget, you need to know exactly how much money you’re bringing in each month. Calculate your monthly income by adding your paychecks and any other source of income that you receive regularly.

Be sure to only include your net pay rather than your gross pay. Your net pay is the amount you receive after taxes have been deducted.

2. Track your spending

If you’ve ever felt like your money “just disappears,” you’re not the only one. Tracking your spending is a great way to find out exactly where your money goes. Spending $10 a day on parking or $5 every morning for coffee doesn’t sound like much until you calculate the total cost per month.

Tracking your spending will help you pinpoint the areas where you’re spending too much and help you determine where you can make cost-efficient cuts.

Simply keep your receipts for the month or review your bank statements to see exactly what you’ve spent money on. Then, categorize your spending.

You can calculate how much you’ve spent on bills, food, travel, entertainment and any other category that makes sense for you. This will help you visualize your spending and determine where you can make some cuts.

3. Set your financial goals

Before we get into the nitty gritty, make sure you have a goal in place. Whether you want to set aside money for an emergency fund, bills, your education or a vacation – having a goal will make your process easier.

Working towards a goal makes saving feel rewarding. Start by identifying and how much money you want to save each month.

4. Decrease your spending or increase your income

When making a budget, you can either change the way you manage your current income or add a new source of income to be used primarily for saving. We know that getting a new job is not always an option, so we’ll focus more on ways to decrease spending.

Take a look at the categories you’ve created. From there, determine which items are your “wants” and which are your “needs.” For example, your rent or mortgage, groceries and electricity bill are needs, or your fixed expenses. Going out to dinner or buying new clothes are “wants,” or your variable expenses.

The items you’ve determined to be your “needs” will cost you about the same amount each month. Calculate how much money you’ll need to cover those expenses.

Now figure out which of your “wants” you can do without. By reducing the number of times you go out to eat or go to the movies, you’ll start to have more money left over.

Put your extra money in your savings account to get one step closer to your goal. After all, there’s a difference between saving a few dollars by using a coupon and saving that money for your future.

5. Stick to your plan

Make sure you stick to your budget. Following your plan will give you the results you’re looking for to reach your end goal! If you’re having trouble, the envelope budget system is a good place to start for beginners.

What are the Basic Reasons for Saving Money?

Saving money is something we all should do but we often fall foul of squirreling our hard earned cash because it doesn’t offer the sense of immediate gratification that spending does.

Learning to save money is an essential habit you simply need to employ to gain financial fitness and step toward financial freedom. Saving money can start with putting away as little as $5 a week.

Many people feel like they don’t earn enough to save but if you create a budget and look to reduce the living expenses you can without a doubt find money that will allow you to start saving.

Here are 10 essential reasons why you should save money:

1. Become Financially Independent

The measuring stick for being rich is different depending on who you talk to. However, the one thing that the notion of “being rich or wealthy” means to most people is having financial independence and savings to depend on.

Calling your own shots, financially speaking, means having the freedom to make choices in your life separate from earning a pay cheque.

This may mean being able to take a vacation whenever you want to, leaving work and going back to school to switch careers, starting your own business or investing in someone else’s start-up, helping family members, taking on a lesser paying job that is more personally satisfying than financially beneficial, or a big one these days – retiring when you want to rather than working because you have to.

Financial independence isn’t the same as being rich, but not having to depend on receiving a certain pay cheque can sure make you feel rich beyond your wildest dreams! Having savings that you can rely on is what it takes to become “rich,” no matter how you define it.

2. Save 50% on Everything You Buy + 24% on Groceries

If you normally charge all of your purchases on your credit card, and then you don’t pay off your credit cards in full every month, because of added interest charges you are probably paying at least 50% more for everything you buy.

If you are relying on your credit cards to afford your lifestyle, break your expensive credit habit by saving up for your purchases ahead of time. 

With savings, you can buy things when they are on sale and take the time to make better spending choices. People with savings can also stockpile groceries when they are on sale (items that are non perishable or which can be frozen).

One author suggests people who do this can possibly skip one grocery shop a month and save 24% a year on their grocery bill.

3. Buy a Home

The bank won’t lend you money to buy a house unless you have a down payment, and you are not allowed to borrow a down payment. You must have this money saved up or have someone give it to you—and not lend it to you.

Your down payment needs to be at least 5% of the purchase price of the house, and then the bank will consider lending you the other 95%. There are all sorts of other costs and fees that you need to pay when you buy a home, so you will need an additional 5% just for those costs. Savings is what will open the door to owing a home.

4. Buy a Car

When you want or need to buy a new car, you will need to have a down payment in order to get a car loan at a reasonable interest rate. You could of course “borrow” the money from your credit card, but at 20+%, how is that getting you ahead?

Zero percent financing is reserved for great customers, so a car loan is bound to cost you something—and it could be a lot. The best thing you can do is save up as large a down payment as you can afford, and then consider your options. Maybe buying a quality used car rather than a new one will be what it takes to get you the vehicle you want.

5. Get Out of Debt

If you ever want to get out of debt, you have to have some money saved. Sounds ironic, doesn’t it? However, the credit cards are never going to get paid off if you have to keep using them for every “emergency” that comes along.

Even if you are an awesome planner, stats show that half of us experience at least one totally unexpected expense each year (and half of those will be unexpected car trouble).

So before you start aggressively paying off your credit cards, you should save up $500 to $1,000 as a reserve fund. Then when unexpected things come up, you can pay them out of your reserve fund rather than put them on your credit cards. Maintaining a “reserve fund” will also help you to notice if your spending is getting out of hand.

6. Annual Expenses

If you want to have a good, relatively stress-free financial life, you need to save for annual expenses. These may include money for gifts, vacations, vehicle maintenance, minor home repairs, fixing appliances, property taxes and possibly income tax.

It can be tempting to refinance a mortgage to pay off debt or to use a line of credit to pay off high-interest credit cards, but it is dangerous to endlessly put expenses on credit without actually paying them off.

The best way to manage these types of expenses is to save for them in advance. This will not only save you money, but it will give you peace of mind.

7. Unforeseen Expenses

What will you do if your car needs some major repairs? Do you have $500 to $3,000 on hand? What if your house needs some repairs, or it is discovered that you are living in a building that leaks? You can’t always count on the bank to lend you money for all of these things. It is much better to anticipate a worst case scenario and have some money saved.

8. Emergencies

As much as we hope that emergencies won’t happen, we all know that they do. A family member can develop a health issue, you might need to make an emergency trip, you may have a car accident or breakdown, severe weather could flood your basement or crack your pipes, or you may have to fly to a loved one’s funeral.

Any of these emergencies can be expensive, and we all know that we will likely encounter some sort of emergency from time to time. So why not be prepared rather than potentially become another victim of an emergency.

9. You Could Lose Your Job or Get Hurt

In good times, everyone thinks that their job is secure, but in bad times, many begin to realize that bad things can happen to anyone. You could suddenly lose your job, your business could dry up, you might get injured—either physically or psychologically or become too sick to work.

Any of these things can happen to you. Employment Insurance (EI) doesn’t kick in until you have been unemployed for 6 weeks. Do you have enough savings to tie you over or will you be living on credit? Living on credit during a time like this can quickly make a bad situation worse.

Minimum payments become higher and higher until they are unaffordable and credit limits no longer budge. Then when you finally do get some income, what used to be enough doesn’t get you by because you have all these new debt payments to make each month.

So now you actually need more income than before because you’ll need to pay down these debts and eventually work to get them paid off.

10. To Have a Good Life

There are huge emotional, psychological, and physical consequences to always living stressfully, from hand to mouth, pay cheque to pay cheque. People who don’t plan for their future seem to run from “crisis” to “crisis.”

There is a little known truth that happiness can come from being organized. Being organized isn’t going to make you happy all by itself, but it can sure help.

There’s so much in your future that you don’t have control over, so putting aside some money to spend when you need it is actually organizing and taking control of your future and financial affairs. You have nothing to lose by saving – and only a happier future to gain.

How much Money Should you have in your Savings?

One question that people find themselves struggling with is how much they should be saving. While it will certainly depend on your situation, here’s a look at what experts suggest you save based on your age, income and monthly expenditure.

Age	Retirement saving goal	Emergency saving goal
30	$74,082	$11,097 to $22,194
40	$289,743	$13,851 to $27,702
50	$656,196	$13,980 to $27,960
60	$706,736	$12,705 to $25,410

Think of these savings targets as less of an exact number and more of a general guide. It will show you how your personal savings and retirement account balances stack up to the averages.

Below you’ll find a full savings guide that estimates how much you should have in savings and your retirement accounts right now, and at different age milestones over the course of your life.

How much do I need to save in my 20s?

Households led by someone between the ages of 25 and 34 earn an average of $74,082 a year, according to the BLS’s 2018 Consumer Expenditure Survey. If you take conventional wisdom, this household, which has one child, on average, should have about that much (one times their salary) socked away in retirement accounts.

As for your emergency fund, these households spend a monthly average of about $1,635 on housing, $859 on transportation, $612 on food, $256 on health care and $281 on utilities. Toss in an estimated $56 per month on debt or loan payments and that monthly essential spending costs $3,699.

Multiply that by three and by six, and you’ve got your emergency fund.

If you are just out of school, saving anything may seem like a challenge. But the important thing is to start saving, and starting small, such as putting aside $1,000 to $1,500 in an emergency fund, is a good place to start.

Consider taking on a side gig or second job to generate a little extra income for your savings.

As you gain work experience and move onto a career track, you can amp up your contributions to your emergency fund and to your retirement account as well.

Here’s what you should plan on saving by the time you reach age 30:

Retirement savings goal: $74,082

Emergency savings goal: $11,097 to $22,194

How much do I need to save in my 30s?

Those aged 35 to 44 earn an average income of $96,581, according to BLS data. Conventional wisdom states this couple should have three times that amount saved for retirement.

Their estimated average monthly spending consists of $1,978 on housing, $987 on transportation, $818 on food, $360 on health care, $374 on utilities and another $100 on debt. That comes to a total of $4,617 a month.

Retirement savings goal: $289,743

Emergency savings goal: $13,851 to $27,702

How much do I need to save in my 40s?

This is the time you hit your peak earnings. It’s also when you’ll spend the most money in your life.

Those aged 45 to 54 earn an average yearly income of $109,366. Experts tell these stressed-out folks they need six times earnings in their retirement accounts.

That might be difficult due to their increased spending. Housing costs actually go down slightly to $1,964 a month, $960 on transportation, $794 on food, $428 on health care, $402 on utilities and $112 on debt. That totals $4,660 a month.

Retirement savings goal: $656,196

Emergency savings goal: $13,980 to $27,960

How much do I need to save in my 50s?

Time to wind down. You’ve probably moved on from the most stressful period of your career, either voluntarily or not, and now you’re preparing for the last third of your life and retirement. That’s why earnings and spending start to fall.

Those aged 55 to 64 earn an average yearly income of $88,342. You’ll want to have saved at least eight times that for retirement.

Thankfully you may need less in your savings account during this time. You spend $1,742 on housing, $870 on transportation, $669 on food, $479 on health care, $375 on utilities and $100 on debt. That’s a monthly total of $4,235.

Retirement savings goal: $706,736

Emergency savings goal: $12,705 to $25,410

How much do I need to save by age 60?

By the time you’re in your mid-60s, there’s a good chance that you’re settling into retirement and enjoying the downtime.

For some, this may mean spending more time with your grandkids while other retirees may finally take that big vacation they’ve been dreaming of. Either way, both lifestyles still require money.

At this state of life, those aged 65 to 74 earn an average yearly income of $51,624. You’ll want to have saved at least eight times that for retirement.

You spend $1,501 on housing, $734 on transportation, $609 on food, $559 on health care, $338 on utilities and $100 on debt. That’s a monthly total of $3,841.

Retirement savings goal: $412,992

Emergency savings goal: $11,523 to $23,046

What is the First Thing you Should do with your Money?

Your first regular paycheck will probably buy you and your friends a round of drinks. With the second one, though, you have a prime opportunity to start setting yourself up for success.

“I think it’s a big transition,” says financial planner Michael Solari. “Especially coming from college, not making any money, to coming home with a paycheck. People’s heads spin about what they should do.”

However, a regular paycheck and a steady income provide exactly what you need to start making good financial decisions for the future.

Here, find seven smart steps you can take with that money to start building wealth right away.

1. Take stock of your student loans

First things first: If you have student loans, you aren’t doing yourself any favors by waiting to see if your lender notices you’ve graduated.

Some loans have what’s called a “grace period,” or a six-month gap after you’re finished with your education, ostensibly to allow you to set up an income. The thing about grace periods, though, is that interest continues to accumulate — so if you can start making payments immediately, it can ultimately save you money.

“Figure out whether you have private or federal loans,” advises Solari, “and if you have federal, figure out how to consolidate them, and whether you qualify for programs like PAYE. If you have private loans that you took out when your credit score was lower, there’s the potential to refinance at lower rate.”

2. Get an idea of your cash flow

If you’re making $60,000 a year, you aren’t depositing $5,000 a month into your bank accounts. Most people have taxes, some retirement contributions (more on that later), and insurance payments taken from their paycheck before they ever see it.

That’s the money coming in. But what about the money going out?

The other half of your cash flow is the money you’re spending, and with apps like Mint and LearnVest, which allow you to connect all of your accounts and keep track of the activity for you, keeping an eye on your outflow is easier than ever.

As long as you’re bringing in an amount equal to or more than you’re spending, you should be able to stay out of debt.

3. Set up a budget

Don’t panic — a budget is just a plan for how you’ll spend your money. There’s nothing worse than realizing $300 evaporated into burritos and phone cases, and setting a budget is a way to pre-empt that disappointing phenomenon. Once you have an idea of your cash flow, setting up a budget is simple.

4. Start funding a retirement account

Solari admits that for many young clients, retirement is so far away that it’s an afterthought.

Ironically, young people are best-positioned to save most effectively. That’s because retirement accounts are invested and benefit from compound interest, which means when you wait to start saving, you’ll have to contribute a disproportionate amount of cash to catch up to the early birds.

And if you’re lucky enough that your employer both offers a 401(k) and matches your contributions — that is, contributes the company’s money to your account up to a given percentage of your own contributions — declining to use the account is essentially giving up free money.

Aside from the employer-provided 401(k), the two most common alternative forms of retirement accounts are the IRA and Roth IRA. This interactive tool can help you choose which form of IRA might be right for you.

Once you start auto-depositing a little money into your retirement account — and maybe even increasing it each time you get a raise — you’re better positioned to start using your money to achieve the things you want most in the (nearer) future.

5. Figure out your financial goals for the next few years

Right now, your paycheck might cover rent and brunch, but what about five years from now? Ten? You don’t need to know exactly where you’ll be or what you’ll be doing, but thinking about some of life’s biggest and most expensive milestones now gives you time to start turning them into a reality.

Do you want to buy a house? Have a wedding? Have a child? Take a trip to Bali? Setting aside some money each month towards those goals for the next few years will make them a lot less intimidating when it comes time to act.

6. Set up auto-transfers into a savings account

The problem with money that goes into savings is that it feels like cash you don’t get to spend, and that’s not a whit of fun. But there’s a way to trick yourself out of that separation anxiety: auto-transfers from your checking account into your savings. “It’s easier to save what you don’t think you have than to try and save what you know you have,” Solari explains.

Plus, he suggests, it’s a handy trick to get yourself used to living on your available cash even before you start saving a considerable amount — like if your employer requires a year’s tenure before you can contribute to the company 401(k). “If you can set up an auto-transfer initially, even if you can’t transfer the money into a to 401(k), have it go to an IRA as soon as possible,” he says. “That way it’s easier to make that transition later.”

Setting it up is simple — usually, you can do it through your bank’s website or with a quick phone call to customer service, and you can always change the amount sent to savings.

7. Get the insurance you need

Insurance is boring until you take a trip to the hospital. Then, it’s the best thing you’ve ever bought.

Beyond the health insurance that’s hopefully subsidized by your employer (and dental and vision, if you’re lucky!) there are also some worst-case-scenario insurances.

“Two things that young professionals don’t really think about are potentially becoming disabled, or passing away,” Solari says. “Many employers will offer some type of group life and group disability insurance, so it’s affordable and cheap enough that they should be grabbing a minimum of what their employer offers. Insurance is important because it’s a low probability, but it can be a really high risk it something were to happen.”

Read Also: The Best Apps you can use for Budgeting

Even if you’re young, healthy, and single without dependents or even a mortgage, Solari would still recommend signing on, but not supplementing your coverage with a private policy outside of your employer. “That’s more for people who have a home purchase, or they’re married, or they might have some kids,” he says.

Finally

These are the simple and practical guides that will help you to change your financial life. If you want to uplift your life and gain financial freedom to do your desired thing, then try out the steps as mentioned above.

Whether you want to save for future expenses or travel to the beautiful locations of the world, budgeting is a must.  So, start budgeting from today and live your dream life in the future.