Knowing how to budget is essential to plan for the future of your finances and stay on top of your expenses.
Whether it’s for a business expense or personal finances, an effective budget ensures that you are transparent with your money to cover necessary expenses and financial obligations, along with extra for personal use.
Using a visual aid, such as a budgeting pie chart, will help you visualize where your money is going and how to adjust your budget accordingly.
What should you do before creating a budget?
1. Think about your income and tax laws
Depending on your country, different budgeting techniques and tax laws may apply.
For example, in the U.S., people need to consider taxes such as federal and state taxes.
In other countries, budgeters may be taxed only on their earned income and not on capital gains or investments.
It’s a good idea to research your country’s ideal budgeting rules before creating a budget.
2. Consider the factors that go into budgeting
There are various factors to consider depending on where you live and your financial situation.
The main factors that should be considered are the following:
a. How often you are paid
Do you get paid biweekly, monthly, or irregularly?
Knowing how often you get paid will help you keep track of and spread out your expenses throughout the month.
Getting paid regularly makes it easier to track your spending, and you won’t have to worry about a set monthly allowance.
An irregular pay cycle can make budgeting and planning for the future more difficult, as it’s hard to predict when your income will arrive.
b. What your lifestyle is like
Are you the type of person who eats out often? Do you live a minimalist lifestyle?
A more extravagant life means you must allocate more of your income toward these expenses.
A minimalist lifestyle allows you to allocate your money to other budget categories.
Knowing your spending style lets you see where your money is going.
c. Whether or not you have any loans or other debts
Do you have any school debt, personal loans, or car loans that need to be paid off?
The average adult takes 21 years to pay off their school-related debt.
At the same time, loans such as cars and mortgages have repayment plans that can take 5, 10, and sometimes 30 years.
Additionally, loan and debt payments have interest that will occur over time, increasing budgeting needs.
When you don’t have debt or loans to pay, you will have more money to spend on fun activities or build up your savings, retirement, and investments.
What is the budgeting rule?
This rule divides your income and spending into the 3 categories below:
- 50% on needs (rent/mortgage payments, food, clothing, transportation, utilities)
- 30% on wants (vacations, dinners out, gadgets)
- 20% on savings (short-term and long-term savings goals such as an emergency fund or retirement savings)
How do you create a budgeting pie chart?
First, you need to create a spreadsheet of your expenses.
You should have 4 overarching categories with subcategories based on the 50-30-20 rule.
Below are some categories to include:
- Necessary expenses (rent/mortgage, transportation, groceries, utilities)
- Financial properties (student debt, car loan, savings)
- Wants (entertainment, shopping, eating out, monthly subscriptions)
Once you have a budget spreadsheet and the total for each category and subcategory, you can use budgeting tools such as Microsoft Excel or Google Sheets to create a financial pie chart.
What are the benefits of using a budgeting pie chart?
A visual aid, like a pie chart, can be useful to see how much you’re spending and where your money is going.
Using a budgeting pie chart to scrutinize your expenses, rather than numbers on a spreadsheet, makes money allocations easier to interpret.
A pie chart helps break down each category of where you are spending, allowing you to adjust your spending as needed.
Strategies to track expenses with budgeting pie charts
There are many different strategies to track your expenses.
One way is to immediately note when you receive and spend money. This option can be tedious, but it provides precise tracking and spending.
Alternatively, you can keep all of your receipts and input them at the end of the day.
How to use Shoeboxed to track expenses
Shoeboxed is an expense-tracking app that can help you manage your expenses.
Instead of individually inputting the information from your receipts into a spreadsheet, you have two options:
- Use the Shoeboxed app to scan your receipts.
- Use Shoeboxed’s Magic Envelope to mail your receipts and receive the information digitally.
Afterward, you can create a budget pie chart to see where your spending is going and adjust your money accordingly.
A budgeting pie chart is an easy way to see your finances visually.
It can help you to better understand where your money is going each month and allow you to adjust as needed to improve your spending habits.
With the right budgeting method and planning, you’ll be in control of your finances in no time!
Tammy Dang is a staff writer for Shoeboxed covering productivity, organization, and digitization how-to guides for the home and office. Her favorite organization tip is “1-in-1-out.” And her favorite app for managing writers and deadlines is Monday.com.
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