Strategies for Budgeting and Saving Money
Budgeting and saving money seems quite complicated for many people as they do not come naturally to them for many apparent reasons. Spending money on unnecessary things is so easy, even a person is committed to a well-structured spending plan.
Still, collecting money and getting on track with a realistic budget might not be as difficult as you think. It would help if you started creating a budget, which can later help you organize your finances, manage debt and prioritize spending. Finally, it will allow you to make progress in your long-term financial goals.
Make a Classic Budget
Budgeting your money is the foundation of a solid financial plan. Taking a clear look at all the numbers can offer a valuable perspective on how you spend your money and how you could organize it to use wisely.
Budgeting can help you spot where you spend more than what you should have spent. Also, it can give you space for the occasional luxury you can allow yourself, as well as emergencies. You have many reasons to spare a few hours to build a typical budget in four simple steps.
- Collect all your electronic or paper bills, pay stubs, receipts, bank statements and any other proof of income or expenses for a month. You can also keep track of monthly payments and expenses on the way.
- Create a budget worksheetusing a budget template from Google Sheets, such as an Excel spreadsheet or paper and pen. Write all your income after taxes, such as investment income, regular and freelance income, and any other profit. Then write down all expenses such as credit card payments, rent or mortgage payments, instalment loan payments, grocery and utility bills.
- Divide your total income and total expenses. If your total income is larger than your total expense, then great, you have more money for paying your debt, saving and investing. If your total expense is larger than your total income, you will need to make some choices on how to spend some of your money if you want to balance your budget.
- Analyze your expensesand categorize them into fixed and discretionary expenses. Fixed expenses like your rent remain the same every month and often form the basis of your budget. Variable expenses are utility bills, which you can lower with behavioural changes like turning off the lights after leaving a room. There is also a segment for discretionary expenses, which consist of wants rather than needs and provides the most saving opportunities.
Adopt the 50-20-30 Approach
You have some other alternatives if you don’t want to form a classic budget. For example, according to the 50-20-30 rule, you can structure your plan. Under this approach of budgeting, you spend:
- 50% of your total income on food, housing, and other necessities
- 20% of the rest of your total income paying debt or increasing savings
- 30% of your income on whatever you want which is a discretionary spending
Some people criticize this plan saying that it allows too much spending and doesn’t indicate debt reduction or enough savings.
Another alternative is a budget app which you can download to your phone, tablet, or personal computer. You can link your app to your credit card accounts, so the app can track your spending and generate a monthly report based on your spending.
Budget apps can also alert you when you have to pay something, when your account balance is too low, or if there’s unusual activity in your account. The cost of this kind of apps ranges from zero to several dollars per month. Some of them also offer free trials so that you can try them before you buy.
Start by spending less on items you don’t need, for example, a $5 coffee every morning or a fancy vacation. You can also spend less by buying a cheaper car.
We have to note that there’s no right or wrong answer because these types of decisions are very personal. But reviewing them can help you realize some of the options you have for saving money and understand your priorities.
Handle Your Debt
One aspect that comes with adulthood is growing some form of debt. Student loans, Credit cards, car loans and mortgage payments are very common in adults. Credit cards and other debts could be an essential part of your financial toolbox as they build your credit history. Understanding the idea of good debt and bad debt can help you to make sure you maintain a good credit history and use credit wisely.
Although, you should always try to make your debt cheaper while you’re paying it off.
To collect some capital, you have to start somewhere. The technique to save money is necessary, but the first step is to spend less than you earn. This point might seem obvious, but it’s also often easier said than done.
Reduce Your Tax Burden
Nobody likes to pay high taxes, but they’re essential in any financial plan.
Learning how to minimize the influence of taxes on your budget can provide you with more money in your account. Tax planning includes maintaining all the deductions and tax credits suitable for you and increasing contributions to tax-advantaged accounts.
Set Up Automatic Savings
One of the most convenient paths in wealth accumulation is to start automatic savings. You can open a savings account and link your account to it that can allow it to transfer a fixed amount to your savings account every month automatically.
Plan weekly lists of meals and nutritious foods. Try to avoid going to the store many times a week by choosing one day per week for your shopping day. When that day comes, take your list to a local market and follow the list.
It will help you if you buy clothes, furniture and other household items at garage sales and vintage shops. However, it would be best to purchase new mattresses, swimsuits, bike helmets, underwear, shoes, and things like that.
Try to spend money only when it’s essential.
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