If you’re feeling clueless about where your money goes each month, you cannot create a financially stable present let alone plan for a healthily funded future.
The following budgeting basics will help you garner a more complete picture of your finances, take control of your spending and invest for the future.
5 Basic Budgeting Tips to Help You Be Financially Successful
1.Follow the money trail
It may feel like your money just disappears, but it’s definitely going somewhere. You just need to pay attention to the specifics.
“The only way you can create an effective budget is if you first track your expenses for at least a month,” reports Bankrate.com writer Sarah Berger. “You need to get a good grasp on what your typical spending and saving habits are already like, so that when you do create a budget, it’s one you can realistically follow.”
2.Create a robust budget
Determine an all-encompassing plan — one that incorporates the bills you have to pay and plans for the things you want both now and in the future. Think potential vacations, an emergency fund and even retirement, advises NerdWallet.com writer Bev O’Shea.
According to Berger, your budget should be divided into three categories: future, essentials and discretionary spending. Your take-home pay should be divided among these areas by specific percentages: 50 percent to essentials; 20 percent to future; and up to, but never more than, 30 percent in the discretionary spending section.
“Essential expenses should include four main categories: housing, transportation, groceries and utilities,” says Berger.
3.Rectify past mistakes
Debt is a small word for a menacing beast. Whether it’s debt from credit cards, a mortgage, or car and school loans keeping you up at night, your debt needs to be factored into your budget, explains Berger. Although it is intimidating, she advises strategizing ways to whittle down expensive debt such as switching high-interest credit cards to lower interest ones.
“If you do have a ton of debt, you’re not doomed. But you should switch your budget up and put 30 percent of your take-home pay toward financial obligations and 20 percent toward discretionary spending,” advises Berger.
4.Simplify the process
Good intentions don’t usually manifest successful results, especially when it comes to money. If you really want to save for the future, outsource the process.
“The easiest way to start socking away cash for your future self is to automate those savings. That way, you won’t even have to feel the pinch in your paycheck; if you don’t see it, you won’t miss it,” writes Berger.
Since there is strength in numbers, O’Shea recommends enlisting the willpower of a trusted accountability partner or the support of an online group who can keep you focused on your financial goals when something shiny (and expensive) threatens to derail your healthy financial trajectory.
5.Keep it moving
Stagnant water breeds bugs and mosquitoes, pests you don’t need in your life. A stagnant budget breeds financial death, a situation you had best avoid.
“Your income, expenses and priorities will change over time. Adjust your budget accordingly, but always have one,” advises O’Shea.
Establish a thorough budget with these basic steps and you’ll have a clearer understanding of what you have, what you need and what you want for the future. Check out our financial planning tools to help you get started today.
Published by Minster Bank
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