Budgeting: 4 key categories to plan your finances!

For many of us, budgeting is just not any fun. It means limits or lack or even punishment. But having a budget or some form of a budget is really important for your financial success. I personally prefer the word “plan” to the word “budget”  because it doesn’t sound so constraining. In order to successfully plan your money, you need to understand where your money goes each month and then you can create a plan to help you re-adjust your spending and/or help you ensure you are within the ranges of your plan.

I break my monthly financial plan out into four categories and they are as follows:

#1 – Money for your future self

Ever heard the words “pay yourself first”? This should be a consistent part of any plan you make. Before you pay any bills or do any shopping, a portion of your earnings should be diverted into your retirement account for your future self. No ifs, no maybe’s. Just do it. Time goes by so quickly and planning for the future version of you will ensure that you can enjoy your retirement and not have to depend on the government or your children to take care of you.

#2 – Essentials / Needs

 Next would be your essentials – the things you need to live your life. This does not include money for shopping or getting your nails done. This is for things like your housing costs (mortgage or rent), transportation and food. Also this category also includes money to pay off any debt you have e.g.your credit card debt and student loans because it is essential you pay them off as soon as you can.

#3  Other Money & Life Goals

This would include money you are saving outside of your retirement account. i.e. your emergency fund, mid term savings and investments for the next 7 to 10 years, business savings, saving for a home purchase, college savings etc
#4 – Everything else

 This is where your splurge money would fall under. Money you would spend shopping or saving for a wish list item, eating out, traveling, entertaining yourself and whatever else it is that you would typically do to enjoy your life.

For each of the categories mentioned above, below is a guideline of how your money can be allocated:

10% – Money for your future self
50% – Essentials / Needs (less than 50% is even better)
20% – Other money & life goals
20% – Everything else

After tracking your spending, if you can allocate your finances into these buckets and percentages you are well on your way to having a solid money plan for each month. Like with everything money related, sticking to your plan requires discipline. If you struggle with your plan initially, having an accountability partner is a great idea!

Written By: Bola Onada Sokunbi
Money Coach and Strategist
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