Budgeting: Where to Start and How to Stay on Track
We all know that we should be budgeting, but how many of us actually do? According to studies, only one in three Americans. For many, creating a budget can seem overwhelming. With pop-up expenses and numerous categories to break down, it can seem almost impossible to nail down a consistent plan to stay within your means. It’s common to think that bringing home more income will solve all of your money problems. However, without a budget, those larger paychecks may still fall short each month. The path to financial wellness begins with changing your habits. Check out these tips below to kick-start your way to a budget you can actually keep!
Track Your Spending
For those who have trouble seeing the big picture, and how all of those small purchases add up, there are several websites and apps that are great for breaking down your spending habits. A lot of these programs will provide up-to-date snapshots of how your income is being distributed. Do you have a coffee habit that can be easily cut? Are there any stores that you frequent too often? Identifying your problem areas here will give you a clear idea of which habits need changing.
Remember the Golden Rule
The 50/30/20 rule is a simple way to allocate your monthly income. This guideline is perfect for those beginning to learn how to manage their money. Start by dividing your money into three categories: your needs, your wants, and your savings.
50% of your Income – Needs
Your essential expenses are those you would have to pay regardless of your situation or your future plans. These are nearly the same for everyone and include housing, food, transportation and utility bills.
30% of Your Income - Wants
This is the category is your monthly allowance and can make or break your budget. Lifestyle expenses such as your cell phone plan, cable bill or morning coffee stops are expenses that can allow you some wiggle room. If these add up to be more than 30% of your monthly income, you may need to consider readjusting.
20% of Your Income - Savings
Last, but certainly not least, the rest of your income should be put towards a savings plan, lowering your debt or an emergency fund. You will want to budget for this after you pay your essentials but before you think about your personal spending.
Pay Yourself First
If you don’t have an emergency fund or a savings account, you’re not alone- neither do 34% of American adults. It’s important to put money towards “getting ahead.” You’ll pay off debt quicker and make a significant step towards a stress-free future by devoting as much as you can to yourself. That being said, sometimes life gets in the way. Don’t be discouraged if there are months where you can only put a few bucks in- something is always better than nothing. Trust us, even with a few dollars here and there, you will watch this account grow faster than you think! Remember that building a solid financial future is a marathon, not a sprint.
Try Your Best and Be Honest
Don’t beat yourself up when you go over budget. Analyze what went wrong and make an effort to fix it. There’s always next month! In order for your budget to truly work for you, you will have to be completely honest with when it comes to your money. Underestimating or guessing at expenses will not work and you will only be cheating yourself. Anyone can benefit from a budgeting system that works for them and establishing good spending habits will last a lifetime. Try not to think of budgeting as restricting your spending, but rather spending purposefully and allowing your money to work for you.
Sources: http://news.gallup.com https://blog.mint.com https://www.gobankingrates.com