Budgeting has never been easy. It is one of those things that we know is important, yet we fail to implement it in real life. This is mainly a concern among young Americans (18-34 age group.) 22% of these people reported taking a loan from their retirement account. 29% were late with their mortgage payments and 26% overdrew on their existing account. How often have you yearned for a vacation but couldn’t do it because of lack of money? This is where the role of budgeting and saving comes into play. It lets you manage your expenses so that you can always have enough money for the things that are important to you. Don’t worry if you don’t have any plan yet. Here is a thorough beginner’s guide to budgeting and saving for you. Check it out.
- Track all your monthly payments
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There are two types of three expenditures- essential, non-essential and emergency. The non-essential factors, at times, can be too tempting to resist. Thus, the first step towards smart budgeting is to know your income and your monthly payments (the essential ones.)
Here’s what you need to do to track the monthly expenditures:
- Calculate your monthly salary, excluding the basic deductions.
- Determine the amount that you are left with based on your in-hand compensation at the end of the month.
- Identify how much you will actually have after deducting the essential monthly expenses.
Here are the essential monthly payments that you have to include:
- Housing expenses such as rent or mortgage
- Essential utilities such as gas and water
- Savings such as vacation fund, emergency fund, etc.
- Get real about your expenses
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Budgeting isn’t about saving whatever money you are left with at the end of the month. It’s about making sure your current expenses are legit so that you have enough money for future needs. Once you list down the expenses, you will know if you are making steady progress and living off the edge. Re-adjust your budget accordingly and cut the non-essential expenses wherever unnecessary. For instance, if you feel you can do without college assignment help, cut down that expense and put that money in your savings account instead.
Here are three ways you can re-adjust your budget:
- The 50/30/20 approach
As per this method, you need to spend 50% of your income on needs, 30% on desires and 20% on financial goals. Let’s say you earn $3000 monthly. So, you can spend $1500 on needs, $900 on desires and $600 on financial goals.
- The Envelope approach
Put aside the money required for savings and utility bills. Then divide this money among multiple categories such as entertainment, dining out, etc. Get some envelopes for each category and put the budgeted cash inside them.
- Zero-based approach
This is one of the commonest techniques for creating a smart budget. Add up all your income. Subtract the expenses. Then allocate whatever money is left to other categories such as allowances for fun, investments, etc.
You can try out any of one of these three approaches to budgeting. Make sure you stick to the approach you have chosen. And revisit the categories to ensure that you aren’t overspending.
- Put your budget to work
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By this time, you know how much money to spend and whether you are in a better or worse position. Let’s say you have a stable budget plan that lets you save a decent amount of money every month. Wouldn’t it be better if you could make financial progress steadily?
Here’s how to take care of your financial future:
- Reduce spending
It’s time to cut spending on items that you need. Let’s say you take a $5 coffee every morning. Figure out if that is absolutely necessary. What if you could opt for a smaller and cheaper car? Lay out these choices on the table and understand your priorities.
- Activate automatic savings
Sign up for automatic savings if you want to lead a path towards wealth accumulation. Open a savings account and get a fixed amount transferred into your savings account per month.
- Keep a check on your debts
Accumulating debts is common among adults. There are various forms of loans such as credit cards, car loans, student loans and mortgage payments. Look for ways to reduce your list of debts. Try paying off the existing ones as soon as possible so that you have a good credit history as well.
These methods can help you avoid making any silly financial decisions that may otherwise take a toll on your future. It is, after all, easy to have a sound sleep knowing you have enough money to support you during emergencies.
Money may not solve everything. But, it does give you an edge. Saving $5 or $10 at the end of every month doesn’t really make a difference these days. You need a proper budgeting plan to make sure you don’t spend your hard-earned money on things that are barely important. It’s easier to confront your destiny when you are comfortable in terms of finances. So, try following this guide and see if it helps you prepare a successful budget for your financial future.