Budgeting and saving money doesn’t come naturally to many people for obvious reasons. Spending money on non-essentials is so easy. I mean, who doesn’t love shopping? Splurging on a new pair of shoes? We’ve all done it! Even if you’re committed to a well-laid spending plan, resisting to spend is harder than it seems.
Getting on track with a realistic budget and putting money away may not be as difficult as you think. Start by taking the time to create a budget. This can help you take better control of your finances and prioritize spending. Therefore, it allows you to make progress toward your long-term financial goals.
Make a Classic Budget
Budgeting your money is the cornerstone of a sound financial plan. Seeing all the numbers in black and white can offer valuable perspective on where your money is going and how to put it to better use.
A budget can help you spot areas where you’re spending more than you realize. It can also be set-up to allow for the occasional indulgence as well as unforeseen emergencies. There are lots of reasons to set aside a few hours to build a classic budget. Especially when you can do it in four easy steps:
1. Gather all your expenses, bills and incomes for the last month.
2. Create a budget worksheet using a budget template and list all income and expenses.
3. Add up each set of figures and subtract the expense total from the income total to get a general idea of where you are financially. If your income is larger than your expenses, you’re in the clear. However, if your expenses are higher than your income, you need to make some cuts.
4. Drill down into your expenses and further categorize them into fixed, variable and discretionary expenses.
Adopt the 50-20-30 Approach
There are alternatives if you don’t want to make a classic budget. For example, you could consider structuring your plan according to the 50-20-30 rule. Under this approach, you spend 50 percent of your after-tax income on housing, food, and other necessities. 20 percent is spent on paying down debt or increasing savings. 30 percent is on whatever you want. Although this plan is simple, some critics say that it allows too much flexibility in your spending and doesn’t emphasize debt reduction or savings enough.
Another alternative to a classic budget is a budget app. Today, there are hundreds of app that you can downloaded on your phone, tablet or computer. Usually, the apps consists of you linking it with your checking and credit card accounts. From there, the app tracks your spending and generates a monthly report by spending category.
Budget apps can often be set up to alert you when a payment is coming due, when an account balance is getting too low, or if there’s suspicious activity in your account. The cost of most apps ranges from zero to several dollars a month. However, there are some who offer free introductory periods so you can try them out before purchasing them.
Put Your Budget to Work
Once you figure out how much money you’re spending and where, you’re in a better position to take the necessary steps to put yourself in a better financial situation.
Start by reducing your spending amount on items you can do without. For example, do you really need a $5 coffee every morning? Could you make do with a smaller, older car? Instead of an expensive vacation, would you be willing to try a stay-cation?
These choices are personal. Therefore, there’s no right or wrong answer. But laying them out on the table can help you understand your priorities and options you didn’t realize you had.
Get a handle on your debt
One aspect that seems to come with adulthood is accumulating some form of debt. Whether it’s credit cards, student loans, car loans or mortgage payments, they are bound to happen as you go into adulthood. Credit cards and other forms of debt can be an essential part of your financial toolbox. However, use them with caution to avoid getting swallowed up by them. Understanding the difference between good debt and bad debt can go a long way toward making sure you use credit wisely and maintain a good credit history.
At the same time, look for ways to make your debt less expensive while you’re paying it off. For example, transferring your credit card balance to a card with a zero percent APR or refinancing your student loan can reduce the amount you pay in interest charges. It can also speed up the time it will take you to pay it off.
To build wealth, you have to start somewhere. The ability to save money is essential, but the first step in saving is spending less than you earn. This point may seem obvious, but it’s also easier said than done. Fortunately, even if your budget doesn’t allow much wiggle room, there are several ways to save money!
– Reducing your taxes
Nobody likes paying taxes. However, they’re an important aspect of any financial plan. Even if you don’t make much money, you might be surprised to learn how certain tax strategies and decisions can affect your finances.
Learning how to minimize the impact of taxes on your finances can ensure that more money is going into your pockets and moving you toward your financial goals. Tax planning includes claiming all the deductions and tax credits you’re eligible for and maximizing contributions to tax-advantaged accounts, such as an employer’s 401(k) plan, an IRA or a Health Savings Account, as often as possible.
– Setting up automatic savings
One of the best and most convenient paths toward wealth accumulation is to sign up for automatic savings. Open a savings account and then link your checking account to it so that an affordable, fixed amount is automatically transferred into your savings account every month.
– Shopping smart and living frugally
Plan weekly menus and meal prep around inexpensive, nutritious foods. Create your shopping list directly from these menus. Try to avoid running to the store multiple times a week by designating one day a week as a shopping day. When that day rolls around, take your list to a local discount market and stick to the list. See if there are any discounts or coupons that you can use to save. When possible, instead of buying new furniture, see what’s available at your local thrift store or garage sales. Spend money only when it’s really necessary.
– Spending money to save money
This advice may sound like an oxymoron, but many real-life examples can have you saving some serious bucks. For example, take your car in for scheduled maintenance and don’t skip your six-month dental cleaning and checkup. These preventive strategies may be painful to your pocket, but deferring maintenance—whether for yourself personally or on items you own—could lead to a lot more pain and expenses down the road.