Creating (And Sticking To) a Budget: Tips for Beginners
Whether you live on your own or have a family to support, the fact remains that budgeting your finances wisely is important. Exercising financial responsibility can mean the difference between maintaining a good credit score and falling into an endless cycle of debt. Spending (and saving) your money responsibly begins by creating and sticking to a budget, regardless of your current income. Unfortunately, many people don’t know what steps to take in creating a budget planner.
Begin By Analyzing Spending
The first step to creating a budget is taking a look at your current spending habits compared to the money you’re bringing in. The best way to do this is to print out your previous months’ credit card and bank statements, then categorizing your spending. This will give you an idea of how much you spend on rent/mortgage, utilities, phone, and cable, entertainment, and other common expenses each month. You might be surprised by some of the numbers.
Separate Necessities and Luxuries
Next, it’s time to see where you may be able to reasonably cut back on your spending. A good way to do this is to separate your monthly expenses into necessities versus luxuries. Anything that isn’t basic necessity falls into the category of a luxury (this includes your unlimited cell phone data plan and that 500-channel cable TV package). Necessities typically include:
- credit card/loan payments
Shop Around for Better Prices
Of course, reducing your spending doesn’t have to mean making huge sacrifices in the process. Not ready to give up your 500-channel cable TV package? Consider calling your cable provider and asking if you can get a better rate, or get a quote from a competing cable service; chances are, you can knock some money off your monthly payment without having to sacrifice your favorite TV shows in the process.
The same goes for other services that don’t have a fixed price; see about shopping around for a lower car insurance rate, or begin clipping coupons to save on your weekly grocery visits (and find a grocery store near you that doubles coupons).
Give Yourself a Cash Allowance
One of the most common areas where people overspend is in their day-to-day purchases, such as that morning cup of coffee or those spontaneous shopping sprees. You can better control your personal spending by giving yourself a weekly cash allowance.
At the beginning of each week, withdraw your set spending amount from your ATM. Then, use that cash throughout the week to make your personal purchases. When you pay in cash rather than with a credit/bank card, you’ll be more conscious of the money you’re spending and will make wiser decisions as a result.
Set Up Automatic Transfers
If you’re looking to build up your savings or retirement account, make it effortless by setting up automatic scheduled transfers from your checking account. For example, you may set up a transfer of $50 from your checking to your savings account every two weeks. It may not seem like much, but that’ll add up to an extra $1,200 in your savings account over the course of a year. Because the transfer is made automatically, you don’t even get the chance to miss the money.
Build an Emergency Fund
Finally, with the extra cash you have on hand each month, spend and save wisely. If you have high-interest debts to pay off, work on those. However, you should also make an effort to set up an emergency fund with at least three months’ worth of money.
By following these budget planning tips, you’ll be well on your way to a better financial future.