Whether you’re paying off debt or saving for retirement, creating a budget is the best way to make your financial dream a reality. But while budgeting can be great for managing finances, it can quickly become overwhelming — especially if the financial plan is overly detailed or unrealistic.
Designing and maintaining a budget doesn’t have to be a complicated process. When consolidating your debts, saving for a house, or just putting a little extra money away for a rainy day, having a budget can help keep your spending and saving habits on track. Here are a few guidelines for building a financial plan that works for you.
Determine Your Goals
The first step in creating a budget is to set spending, saving, and debt repayment goals. Be realistic when setting your goals, and prioritize your spending. Cutting out unnecessary spending can help you pay your debt off faster, but you don’t want to be skipping meals just to save a few bucks. If you can’t figure out how much you should be saving and spending, using the 50-20-30 rule is a great way to get your finances under control. Following the 50-20-30 principle, you would put 50 percent of your monthly take-home pay toward living expenses, 20 percent of your pay toward savings, and 30 percent of your pay toward discretionary expenses (personal spending, dining out, travel, etc.).
Track Your Spending
Once you’ve determined your goals, you’ll need to start tracking your income and spending. Doing so will give you a clear picture of your current spending and saving habits. You’ll then know what changes you’ll need to make to the 50-20-30 rule in order to create a budget that suits your lifestyle. Consider using a budgeting app like Mint or EveryDollar to track your spending.
Set Up Automated Billing
Automating your monthly payments is a great way to manage your spending while making sure your bills get paid on time. There are three basic ways to set up pre-authorized bill payments: Through your bank’s online bill payment system, through your credit card company, or by setting up automated payments directly with the creditor. If possible, use a credit card that offers rewards or cash-back bonuses to pay your monthly bills.
While your groceries and utilities are considered necessary expenses, there are other ways to make your lifestyle more budget-friendly — such as taking the bus, clipping coupons, or starting your own vegetable garden. If reducing your spending doesn’t improve your financial circumstances, it’s time to look for ways to increase your income. Get a part-time job or sell some old belongings to bring in some extra cash.
A budget isn’t meant to be restrictive. Think of budgeting as a way to ensure your current needs are met while still allowing you to save toward current and future goals. Saving for a specific reward, like a vacation or a car, will motivate you to stick to your financial plan.
It’s never too late to take control of your finances. The above tips will help you design a financial plan that works for your goals and lifestyle.
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