You have a big expense coming up, you might need a new or better car, or a bigger home, or you want to go back to varsity… What do you do? Borrow, borrow, and borrow, right? Well, maybe not.
Spending less than we make is often cited as the most important personal finance goal. It helps us get out of debt, save for emergencies, and stash money away for retirement. It is the primary habit that enables us to achieve some level of financial freedom.
It can also be really difficult to accomplish as most people overspend and live beyond their means. So if you overspend most of the time, here are a few tips for more effective and stress-free budgeting.
- What is the goal?
The goal of a budget is not to track every dime you spend, it is definitely one way to budget, but it’s not the goal. The goal of a budget is to help us control our spending so that we spend less than we make and focus our spending on what matters most to us. So whatever your budget is, it should meet a goal you have set, if it doesn’t, you are doing it wrong.
- Track Spending per Week:
While not the goal of budgeting, knowing where every cent you spend goes for a short term will be eye-opening. It will show you how spending even small amounts of money adds up over time and it will also reveal areas of spending that otherwise go unnoticed. Ideally you should track your spending for a month, but tracking it for a week also helps.
- Charge it:
We all love charging everything to a plastic to monitor our spending, so try using rewards cards, debit cards, or prepaid card instead of carrying cash all the time (don’t use your credit card.)
- Save First:
The main aim of budgeting is to spend less than we make, so save money. One of the best ways to do this is to save before you do anything else, rather than saving what is left over at the end of the month. Save first then spend the rest. By getting the money out of your checking account and into your savings first, we are less likely to spend our savings during the month.
- 50/20/30 Rule:
The 50/20/30 rule is an approach to budgeting benefits from simplicity. With this plan, 50% of your income goes to necessities, 20% to long term savings, and 30% to lifestyle choices. This plan can be a good starting point for those who are struggling to decide just how much they should spend on individual budget categories.
Creating a budget can be a frustrating task and staying on a budget can be even harder. Once you’ve created your budget, it is important to stick to it.
There isn’t really a budgeting tool that is better than the other, you just need to find the tight tool that works for you. What works best for one person, might not work best for somebody else.
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