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5 key steps to budgeting

3 mins read

5 simple steps to making a budget plan towards your financial freedom

Budgeting is the first step to attaining financial discipline, yet most people fail to budget and wonder why they can’t save money. Thankfully, budgeting is not complex – you can create your own budget by following a series of simple steps that will help you to get your finances in order. In this article, we will discuss five key steps to budgeting, which will allow you to achieve your long-term financial goals. You might also like to read our post on the 50-30-20 budgeting method, which offers a simple and intuitive approach.


1. Determine your income

If you’re employed and earn a fixed salary, you can record your take-home or net salary as your monthly income. However, if you are self-employed or are earning income from a variety of sources, you should add up all income sources to determine your cumulative income. If you own a business or are self-employed, your income will be variable. In that case, you should calculate your average income and record it as your monthly income for budgeting purposes.

Without the help of a tool like Humaniti, you could calculate your monthly income by gathering your financial documents, such as bank statements, pay slips, investment account statements, and any other record that can help you accurately determine your monthly income. Humaniti can make this process a lot easier. Once you link your financial accounts, we do the hard work for you to surface your income.

Once you’ve accurately calculated your monthly income, it will become easier for you to budget for your expenses and savings that you need to reach your financial objectives.

2. Calculate your expenses

The traditional way of calculating your monthly expenses is to prepare a list of expenses that will give you a rough idea of how much you spend each month. The list of expenses you include in your list could include rent payments, mortgage repayments, fuel, insurance expense, utilities, groceries, dining out, etc. While expenses, such as insurance, mortgage, rent will be fixed each month, you will have to estimate the variable expenses, such as fuel, dining out, groceries.

To estimate your variable expenses, you could view your bank statement, credit card statement, and receipts of previous months and calculate the average monthly expense incurred. However, the traditional approach is time consuming, inefficient, and inaccurate. There is another way!

Humaniti takes the hassle out of expense calculation by doing the hard work for you. When you link your financial accounts, our smart logic categorises your spending, identifies recurring subscriptions, and prevents a view of your expenditure that you can analyse in detail.


3. Set spending limits

After understanding your monthly fixed and variable expenses, you could assign spending limits to each category of expense. Further to understanding your expenses (step 2), you can easily analyse your expenditure for each category and determine reasonable limits to curtail any unnecessary expenses. This will ensure that you do not breach your spending limits, ensuring you remain disciplined and in line with your budgeted spending.

4. Compare income with expenses

After calculating your income and expenses, deduct total expenses from your income to determine whether your income is sufficient to pay off your expenditures. If your income exceeds your expenses, you will have a budget surplus. But if your expenses exceed your income, you will have a budget deficit, which you’ll want to avoid.

Personal finance experts advocate the 50-30-20 rule that proposes spending 50% of your income on essential expenses, 30% on your wants, while saving the remaining 20% of your income. By keeping your expenses lower, you can widen your budget surplus and invest your saved money to fulfill your long-term financial goals.

5. Track your progress with a budgeting app

Step 5 of the 5 key steps to budgeting is to consider using a budgeting app. A budgeting app can go a long way towards attaining budgeting discipline. Humaniti can help by providing a a 360° snapshot of your financial position and by ensuring you get a clear view of your spending. By using a free budgeting and personal finance app like Humaniti, it will be easier to ensure you’re on track with your budgeting plan and goals, while also understanding the bigger picture of your personal finances.



Budgeting provides you with greater control on your finances, while allowing you to save the desired amounts to finance your larger purchases and minimise unnecessary debt. By following the 5 key steps to budgeting mentioned in this article, you can create a successful budget for yourself that will help lead you to achieve financial independence.

* Disclaimer – the information in this post is general only and does not constitute financial advice.