1. Follow the Money

The first step to an effective budget plan is to know where your money is coming from and going to. The best way to start is to write down all of your income, including your regular pay cheques, bonuses, and ones that come from your side jobs, in order to have a basis of how much you earn monthly. Next is to write down all of your expenses for the month.

Take advantage of tools that allow you to record and track your expenses with ease. This can save you a lot of time and stress from having to write and calculate them manually. Personally, I hate having to manage too many papers, so before going to bed each night, I record all receipts from the day into my spreadsheet and then dispose them.

  1. Organise Expenses into Categories

The next step is to categorise your expenses. Some separate fixed expenses from variable expenses (ones that change monthly). I prefer separating my wants from my needs though, so that I could better control what goes to each category.

The envelope method works a lot for many people. As a freelancer with varying monthly income, this method best fits my needs.

  1. Set Savings Goals

To stay motivated on saving money, you need to have a clear image of why you are doing it in the first place. Perhaps you want to save up for a home in the next few years, or you want to save up for that dream vacation. Whatever your goals are, make sure to set specific timelines.

  1. Compare Your Goals with Your Habits

Do you see yourself retiring at 50, but find that you’re spending too much on morning lattes and weekend drinks? It’s important that your habits are aligned with your goals. For me, it helps to build momentum when I set one small goal at a time besides my longer goals. For example, my most important goal is to retire early, but I’m also setting aside a small portion of my income for local trips around the country. Besides working around my expenses in general, I particularly cut back on some categories, let’s say, dining out, in order to meet my other smaller goal. If you can decide what’s really the most important to you, then cutting back on less important areas may not seem like a sacrifice at all.

  1. Personalise Your Budget Plan

The best way to stick to a budget plan is by customising a plan that suits your needs and behaviour. It’s no use promising to save 30% of your salary when you simply cannot afford it, as you will just get discouraged along the way if you constantly don’t meet it.

  1. Pay with Cash

Now that you know how much to spend in each category, it’s time to stick to those numbers. Using credit or debit cards can be an easy way to sabotage your budget, so it’s best to implement a cash-only policy.

  1. Make Savings Automatic

Budgeting can be very challenging and tedious, especially when you have to always make conscious efforts. I follow the principle of paying myself first and set aside a specific portion of my income as soon as I receive my pay cheque.

  1. Commit to Paying Off Debt

Having existing debts can become a huge hurdle in your saving  goals. I know it’s hard when you’re dealing with multiple payments, so it helps to start by paying off highest interest debts first and paying minimum for the rest. Then you move on to the next one.

  1. Make Allowances for a Miscellaneous Category

Miscellaneous spending can easily bust your financial plans. Setting aside fun money can make budgeting worthwhile, and it helps avoid the guilt for spending on things that you enjoy.

  1. Don’t Forget to Budget for an Emergency Fund

It’s easy to ruin your plan altogether with one event, such as losing a job or getting sick. An enough safety net will keep you on track despite these events and prevent you from having to acquire more debt.