Having a budget is a pre-requisite for using dollar cost averaging but it might be difficult if you don’t know how to make an effective budget.
An effective budget is not just a budget but a budget that achieves that which it is supposed to achieve.
What is a budget?
A budget is a financial blueprint that explains how income will be generated and how it will be spent.
It is a statement of income and expenses for a specified future date based on certain objectives.
How to make an effective budget
Building an effective budget requires certain steps which are as follows.
Income Analysis
This is the most important aspect of budgeting.
How can you make a budget when you do not have a source of income?
Either you are an entrepreneur or a freelancer or students, income management is a skill that you should have.
Business management is mainly for business owners and highly important for freelancers even if you are into personal branding.
Make a list of all your previous income and see how much you’ve been able to make before.
This will help you to know how much you are more likely to make.
If you are a freelancer and your income level is not certain, it will be ideal to make use of the minimum amount you’ve made so as to prevent a deficit.
Expenses Analysis
This can be subcategorized into the following;
- Track your spending
Take a little time to check how you’ve been spending your money. Go through your expenses and make a detailed analysis of when and how you’ve spent your previous income.
- Categorize your spending.
Your expenses will be an unending list if you decide to input them one after the other.
To make your work easier, categorize your spending as transport, feeding, social, emergencies etc.
- Cut cost
After tracking and categorizing your expenses, look for the best possible way to reduce costs without any significant harm on your welfare.
Create an effective budget
After knowing what your past expenses and income is, next is to create a budget.
Make a list of how much you are expecting and how much you want to spend.
When creating your budget, make sure you include time and date when you are expected to make an expenses or when you are to receive an income.
Aside from your expenses, it is expected that you should include 10% or 20% of your expenses as emergency expenses due to unforeseen circumstances.
Test your budget
After making a budget, it is not yet effective unless proven otherwise.
Live according to the budget for a specified period and take note of relevant changes.
Refine your budget
It is very much necessary that you will inculcate your deviations into your budget.
Make corrective changes to the budget and test again.
Be Accountable
One of the importance of budget is to make you accountable.
Not to anyone but to yourself and to help you make plans on how you can achieve your goals.
If you are having a deficit in your budget, you can make use of other passive income like saving in dollars to hedge against inflation.
Kumo is the best wallet for you to track your spending and income without stress.
You can also invest with as low as $5 and earn up to 30% APR
To make use of budget in crypto trading, make sure you read how to invest in cryptocurrency
About Kumo
Kumo, registered as Kumo Technologies Inc in Delaware, U.S. is a fiat and crypto social payment app which allows users to exchange fiat (NGN) to crypto, save and earn interest in dollar with as low as $5, utility payment such as DSTV subscription, airtime, data among others.
Kumo wallet is your all-in-one social payment app for seamless payment solutions.
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