Khaberni - Forbes Magazine, in a recent report by writer Tru Tamblin, asserts that a budget is not merely a spending tool, but "a personal roadmap that ensures every dollar is directed towards a meaningful goal."
The report presents 5 effective financial practices that, according to the magazine, can transform an individual's financial life towards stability and financial freedom.
1. Know Your Numbers
Forbes begins with the fundamental rule: you cannot manage what you do not understand, so before setting up any budget, one must know where the money is actually going.
The report emphasizes the necessity of tracking expenses for no less than 30 days, including minor ones like coffee or impulse purchases, using financial apps or even a simple notebook.
Tamblin asserts that "regularly tracking spending enhances financial awareness and reveals habits that drain the budget unconsciously."
The report also highlights the importance of distinguishing between fixed and variable expenses:
- Fixed expenses include rent, insurance, loans.
- Variable expenses, such as energy bills, food, and entertainment, are more adjustable.
It warns against budgeting based on gross income, asserting that "relying on net income after taxes (and deductions) is the only way to avoid a monthly deficit."
2. Choose the Method That Suits You
Forbes explains that there is no one perfect method for budgeting; it should be practical and sustainable.
The magazine discusses three main approaches:
- 50/30/20 rule: Allocate 50% for needs, 30% for wants, and 20% for savings or debt repayment, with adjustments possible according to goals.
- Zero-based budget: This means allocating every dollar at the beginning of the month so that income minus expenses equals zero, ensuring complete control over money.
- Cash envelope system: A method based on distributing specific cash amounts for categories like food and entertainment, and stopping spending once the allocated amount is used.
The report states, "The best method is the one you consistently adhere to and fits your financial personality."
3. Be Goal-Oriented
Forbes mentions that a budget without a goal is merely a soulless spreadsheet. It recommends using the SMART goals approach to make goals:
- Specific.
- Measurable.
- Achievable.
- Time-bound.
Tamblin gives a practical example: "Instead of saying I want to save, say I will save $5,000 for a trip in next December," and the writer advises adopting the "pay yourself first" rule, meaning considering saving a fixed monthly commitment before any other expenses.
He adds that "paying off high-interest debt should be a priority, as it represents a burden that prevents long-term financial progress."
4. Automate and Be Ready for Surprises
Forbes asserts that financial success does not depend on daily willpower but on smart systems that operate automatically, and the report notes that "automating payments and bills through banking apps ensures no delays and reduces errors."
It also advises setting up a fund for irregular expenses such as annual insurance or property taxes, allocating a monthly amount in advance to avoid surprises.
An emergency fund should cover at least 6 months of living expenses and should be kept in a separate account designated only for emergencies.
5. Review, Adjust, and Be Patient
The magazine describes the budget as "a living document, not a rigid contract," and advises reviewing it monthly before the start of each new financial cycle to compare plans with actual results.
Tamblin stresses the importance of flexibility: "If you exceed a certain item like food expenses, do not give up, temporarily adjust the plan," and he adds that discipline is more important than perfection, as mistakes are a natural part of financial learning, and continuity is the key to success.
