People typically equate budgeting with a boring and often miserable life. It does not have to be this way with proper planning and execution. Even if you believe you have dug yourself in an inescapable financial slump, you are always capable to reverse things and do not need an MBA to do so. The key to budgeting is prioritizing your needs and fun to reach your financial goals. You want to understand what your goals are before creating a plan. Are you wanting to pay off your hordes of credit card debt? Want to save enough to pay in-full for your children’s braces? Plan a romantic anniversary getaway with your significant other? You should also try to implement methods that you can stick to and keep personal accountability. As cliche as it sounds, what works for others may not work for you. Here are some tips:
The bare basics of budgeting is to spend less than you earn, and ideally save money during the process. Many phone apps exist that can immediately transfer funds after receiving your paycheck into designated bank accounts like utilities/rent, savings, free-spending, etc. Bills sometimes have different due dates so an automatic billing and payment system arrangement can eliminate potential forgetfulness. Other apps track where money is being spent. This is the easiest mode to decide what manageable changes can be made (eating-out less, entertainment limitations, etc). If you are less tech-savvy or simply prefer a tangible method, writing down your expenses works. Understanding the categorical detail importance of expense reporting highlight your spending habits to activate internal self-control.
A savings fund has vital qualities. The main issue with a savings is not that do not people have them, but people do not commit to it. Many young and middle-aged adults, particularly with student loan debt or credit card debt, are preoccupied with paying off debts than savings funds. No matter how low the salary, it is highly advised to save some money every month into a savings account. A recommended percentage would be to put 20% of your income into a savings. Treating your monthly savings as an indisputable expense forces you to save. Not only do these funds help organize finances for larger plans (like trips), but prepare a safety net when spontaneous emergencies occur (car breaking down). Also, if you want to make big ticket price purchases, saving your money can be integral.
Firstly, a savings is proof of you are dedicated and responsible to loan-lenders. You are more likely to qualify for lower-interest rate loans which can save you money in the long-term. Additionally, you will have to take a smaller, more bearable loan.
Investing in a retirement fund early can save you a lot in the long-run. Many companies offer compounded interest (“interest on interest”) and match the funds you invest. IRA accounts are a great place to start looking. There are a multitude of these so you can find one that best fits your financial situation and future expectations. Retirement money insulates your loved ones from financial burden and in a way you can earn ‘free money’. Again, it is critical to research before you invest your money. Some retirement accounts will not give you access to a fund until you reach a certain age. This is where knowing your self-control habits lie and making the most responsible decision for yourself and your family. If you know you are likely to spend or not save the money, this process can be beneficial.
Debt is not necessarily bad as most people will have to take some form of debt whether big or small. Building credit helps you own a home, buy a car, finance your education, etc. however it likely is accompanied with debt. Debt shouldn’t scare you. It is not necessarily bad as most people will have some form of debt at some point in the life. However, using debt for long-term goals with the intentions of eliminating it and avoiding unnecessary debt is critical. When mismanaged, debt can be overwhelming.
Try to only use one credit card. You can still develop good credit and it is much easier to manage. There is a reason many companies target young and middle-age owners versus senior citizens; this age group is less likely to have the income for upfront (increased card dependability) and are more likely to make impulsive purchases. Though tactics such as ‘earning money back on purchases’ and ‘zero-percent interest for the first 6 months’ are luring, realize these methods are to encourage more spending. In terms of budgeting, you will be using money you don’t necessarily need to spend and are an increased risk to have substantial credit card debt as interest collects. Multiple credit card debts are overwhelming and are avoidable.
If you have a partner, it is a good idea to discuss your budget and investment plans with them. Though you may share an abundance of similar ideas, assuming you both are on the same page can be detrimental in the long-run, especially if you two have children. People have different visions of how they want to spend their later years. In fact, it can bring a tighter bond if you realize you share the same goals and can begin saving for it together. Many financial institution offer joint budget services.
There is no straightforward technique in money management and it does not have to be a complex process. Yes, the commonality is being able to properly save and spend money, but everyone’s own financial situation and expectations vary. No matter what fiscal position you are in, nothing is permanent enough to keep you there. There are tools to be in good finances. However, the earlier you begin budgeting, the easier it is to manage. Self=reflection and self-control will be your biggest assets. You should create realistic goals that reflect your capital, debt, and expectation. Budgeting seems restrictive in nature but the irony is that it gives you the most freedom with your money.