How to Budget Your Way to Financial Freedom

crop woman counting money at modern office table
crop woman counting money at modern office table
Photo by Karolina Grabowska on Pexels.com

Reaching financial freedom is a dream shared by many people. You can achieve financial freedom by having enough investments, savings, or even sufficient cash in your pocket so that you can afford necessities for your family and maintain your lifestyle. Even if you retire, you still have enough money coming in, often from investments or passive income. The goal is often peace of mind in your life and ditching the stress of living from paycheck to paycheck. 

Unfortunately, many people cannot easily attain financial freedom because of different factors that hinder their way of living. People are often burdened by credit card debt or loans with high interest rates and no plan to pay them off. They also have difficulties that arise from financial emergencies, increasing debts due to a lack of preparedness. Others plainly have a poor time managing their money in an efficient way.

To successfully budget your finances and pursue financial freedom in a way that you don’t feel that you need money, there are many general tips you can follow, such as:

  • Create a financial plan and stick to it
  • Plan for all expenses in your household, including fixed monthly and variable costs
  • Make sure that your expenses do not exceed your allocated budget
  • Prepare an allocation for emergency purposes
  • Reconsider unnecessary purchases
  • Avoid taking out loans with high interest rates

If you can create a smart budget and stick to it, then financial freedom is right around the corner.

Why Create a Budget?

Creating a budget is essential to getting control of your finances and pursuing financial freedom. However, some people overlook this crucial step because they don’t like feeling restricted in how they spend their money. In reality, a budget gives you the flexibility to spend your money on what’s important to you because you’re planning ahead for those expenses.

After you establish your financial priorities, you can avoid overspending in certain categories. For example, if you need to cut back on eating out to put more money in your emergency fund, you’ll know when you’ve reached your limit for the month to stay on track with your goals. Conversely, you may decide to reduce some entertainment spending so you can afford more expensive groceries.

Here are some of the reasons why you need to create a budget at home:

  • Avoid overspending on things that are not needed most. If you spend money without carefully thinking about where it all goes, then the time comes when you don’t have enough for the things that really matter.
  • Reach your goals faster. Budgeting helps you to prioritize the things that you can’t go without. If you have done proper budgeting, you can focus your money on your house’s essential things. This might be saving more money, working on starting your business, or getting out of debt. The budget that you have created will serve as your plan to track your expenses if you’re spending wisely while pursuing your goals.
  • Save money for emergency purposes. It is a fact that the people who do proper budgeting can save more money than those who do not. If you want to save more money and be more prepared for unexpected events, then you need to prepare a budget plan.
  • Stop worrying about money and provide for the things that make life enjoyable. Although money can’t buy happiness, proper budgeting provides you peace of mind since you don’t need to think about payments or finances. You can let your budget do the work for you. Just allocate your money based on your spending categories and their designated amounts.
  • Become more flexible. You may have to shift financial priorities on short notice. You may have to modify your budget, but you’ll be able to visualize where your money is going and where you can make adjustments. This could be helpful for you, especially if you only have a limited budget at home. It would also help you identify some issues and priorities in life to still have money going into savings at the end of the month.
  • Gain control over your money. If you create and follow a budget, then you can control your money and prevent spending too much. You will spend based on the categories and budget plan that you have created. Thus, you will have an easier time spending your money wisely and appropriately.

These are just some of the reasons why you need to create a budget for you and your household. Developing a budget and following a financial plan helps you reach your financial and life goals and prepare for unexpected expenses and events.

What Is a Zero-Based Budget?

Zero-based budgeting is a type of budgeting strategy wherein every dollar of income is assigned to a category. Your income minus your expenses and savings should equal zero. Typically, this begins from scratch, assessing all of your necessary expenses and then determining how much can go toward various savings and other categories. Zero-based budgeting allows you to be more strategic in approaching money management and ensuring every dollar is hard at work.

Why Use a Zero-Based Budget?

Using a zero-based budget is arguably better than the traditional way of budgeting. In fact, it provides great benefits and advantages to everyone, especially in making decisions for how to distribute your income. It also provides you great control over your finances. You will always know where your money should be going and have greater ease staying aligned with your goals.

  • It gives you proper planning in your money, especially with the leftover money. Using a traditional budgeting method doesn’t leave room to determine what you will do with the extra cash. If you have extra cash left in your budget, you may decide whether to purchase something outside of your priorities. The concept of zero-based budgeting helps you to build your financial objectives into your budget.
  • It helps you not to overspend. This strategy would help you to overcome overspending. If you think that something is not that important, then you probably don’t need to invest in that product. You will think that it’s not worth buying it since you stick to your budget plan.
  • It breaks the cycle on living paycheck-to-paycheck. This kind of budgeting approach is according to the money that you have earned. Since your income minus expenses will always equal zero, you won’t have to worry about not having enough money to pay your bills. It will also ensure that the money you have leftover is being utilized wisely.

How to Create and Use a Zero-Based Budget?

Creating a zero-based budget is as simple as identifying your monthly income and splitting it up into expenses and savings.

  1. Identify the average amount you earn each month. (Consider adding a side hustle or doing under the table jobs to boost your income.)
  2. Determine your fixed monthly expenses and savings.
  3. Distribute any leftover money to additional spending or savings categories based on your individual financial goals.

If you find that you have additional money that’s not assigned to a category at the end of the month, you can determine a specific priority to which all leftover funds will be distributed. Alternatively, if you find yourself short on money, then it would be best to adjust your zero-based budget to reflect that month’s income, so you’re never lacking.

Budgeting Is the Key to Financial Freedom

To become financially stable and achieve financial freedom, it is necessary to prepare a budget plan and follow it every month. Budgeting will be the basis of your financial plan that allows you to identify your goals and actively pursue them. Before you know it, you will be free of money stress and confident in your path to financial freedom.

Samantha Hawrylack
Samantha Hawrylack

Samantha Hawrylack uses her BS in Finance and MBA to help others control their finances through budgeting, saving, investing, side hustles, and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles. She is now a full-time entrepreneur, freelancing coach, and blogger.

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