When you consider that 2 of the basic financial rules that all people should follow are tracking their expenses and placing limits on their spending it’s quite surprising that many Americans still don’t have a budget and use it regularly. The fact is, a budget will force you to prioritize your decisions, make better decisions and keep you on financial track. Another fact is that there isn’t one size or type of monthly budget that fits all families. With that in mind it’s important to know exactly which expenses are most important and to base your budget and your priorities on this information. The tips that we’ve provided in our blog today should help you to do just that. Enjoy.
One of the first steps to creating a budget is to determine which of your expenses are non-negotiable. These are expenses like your rent or mortgage and the utility bills that come with them as well as car loans and so forth. They are non-negotiable because they definitely need to be paid every month no matter what. Determining these expenses will help you to determine exactly what you have left over for other, negotiable expenses like your gym membership, dining out, purchasing new clothes and so forth.
One of the biggest problems in the United States today is habitual overspending. Indeed, when you consider that $82 billion worth of new credit was racked up by American consumers in the last two years alone, you can see how gigantic a problem this actually is. Eliminating this debt on an individual basis is best done by paying off the credit card or loan with the most expensive balance and highest interest rate first, repeating this down the line as you pay them off. It’s also vitally important to make at least the minimum payment (and make it on time) and when you can, pay more than the minimum.
Of course one of the most important (and simple) things that you can do is to simply stop accruing more debt. Unless a new credit card or loan is going to somehow help you pay down your debt, there’s really no reason to take them out. Simply put, debt reduction is a process that takes a good bit of time, diligence and even a little bit of sacrifice. (Sometimes a lot of sacrifice.) Adding to your debt continuously is going to get you nowhere fast.
One vital task that needs to be accomplished when you’re starting a budget is to identify your savings goals and incorporate them into your budget plans. Do you need an emergency fund? How about a fund to pay for your child’s education? Do you want to purchase a house in the next five years? All of these questions need to be answered and, if you can figure out approximately what the amount of money is that you’re going to need, you can figure out how much you’ll need to save every month in order to reach a goal. For example, if you would like to save $30,000 to use as a down payment on a new home and you would like to do it in 10 years, you’ll need to save $250 a month.
One last bit of advice is simply this; expect to make mistakes. We’re all human and we all make mistakes once in a while, especially when it comes to money. Knowing this, give yourself a little bit of extra ‘wiggle room’ in your budget when you’re creating it so that, if you eventually do go over budget, it’s not going to ruin all of your plans. If you put an extra 5% aside every month in your budget to cover those times when you either make a mistake or make an impromptu purchase you won’t end up paying for it for months down the road.
As we said before, many people don’t have any type of budget set up that they use to control and keep track of their finances and expenses. If that’s you, we strongly urge that you use the advice and tips that we’ve given you here today and also go back and take a look at some of our other many blogs about budgets and budgeting. Best of luck and we’ll see you back here real soon.