Good budgeting is the perfect way to help you keep on top of your finances. However, there are lots of people who still don’t budget properly, and they’re missing out on a very helpful tool.
Often, we think we know how much we spend and what we spend it on, but when we really drill down into the details, it turns out our spending is very different from what we imagined. The only way to truly find out, though, is by sitting down and writing out a budget, so it’s a great first step in taking more control over your finances.
If you’re ready to start doing your budgeting, then here are seven important strategies to follow.
Budget Every Month
Before you start a new month, make sure you know where every dollar is coming from and where it’s going to go. Of course, you can’t predict the future, but we can paint a pretty accurate picture of our income and expenditure. The more you do this, the better you will become at creating a very realistic picture of your income and expenditure.
Even if you’re a little bit out, though, your budget gives you a good blueprint for what you need to achieve. For example, if you know each weekly shop should come to $100, you know if you’re starting to go over that number, then it’s time to get rid of some non-essentials.
At the end of the day, we all want to turn a net loss into a net gain, and a budget is a simple way to do this. When you can see all your spending neatly categorized, you can see the areas where you can save and take control of your finances.
Everyone Needs to Buy-In
If your finances are shared with a loved one, then it’s essential both partners are committed to the process. It’s no good if one person is sticking to the budget, and the other one is blowing there’s each and every month.
Instead, you need to work together to come up with a realistic budget you can both stick to. This requires good communication and a little bit of teamwork. Once you’re both sat down and are looking at the figures together, then you’ll often find it’s quite simple to come to a consensus and create a budget that works for everyone.
Prepare for Foreseeable Expenses
There are some expenses, such as emergency car repairs that you just can’t foresee, but there are many expenses that you can foresee. Staying on the car example, if you know your tires are starting to get low on tread, then you can start putting some money aside right now so that when you come to replace them, you’ve got the money you need. It’s easy to avoid nasty financial surprises with a little planning.
There are lots of little things throughout the year where you know your expenses are going to be a little bit higher, so make sure you’re looking ahead. With good planning, you can make it much easier to absorb these expenses by putting a little extra money away each month.
The essentials should always be the first thing to go on your budget. These are the things you can’t do without, such as your accommodation, bills, utilities, and basic food and clothing.
Once you’ve accounted for this spending, then you can see how much money you’ve got left to play with. If you go through your spending in order of importance, then the further down the list you get, the more you’ll find the areas where you can make savings.
Many people will find there are plenty of areas they can make small cuts, allowing them to start saving more money.
Paying off debts should be one of your main priorities with your budget because of the interest you pay on it. If you work out exactly how much you pay in interest and how much it takes out of your budget, then it really goes to show the benefits of paying debt off quickly.
If you’re finding you save some extra money through budgeting, then it’s a great idea to start paying extra off your debts. This is simply because the interest rates on your debt are going to be higher than the interest you get on your savings.
The quicker you can pay off your debts, the more you will save yourself in the long term. However, it’s not always easy to get on top of debt, so if you’re struggling, find expert assistance for a debt lawsuit.
Create an Emergency Fund
As we mentioned earlier, there are some expenses you just can’t predict, but that doesn’t mean you can’t plan for them, though. By paying into an emergency fund each month, you create a buffer that’s there to help you out in case of an emergency.
Say your boiler breaks down in the middle of the winter, or you have car troubles which stop you from getting to work. These are things you need to get fixed, and with an emergency fund, you can do this.
It might take some time to build your emergency fund, but it’s a great thing to have, and you never know when it might come in handy.
Sticking to a budget isn’t easy. It takes a lot of commitment to be strict with your budget, so when you do a good job, you should reward yourself.
Goal setting is a big part of being in control of your finances, and rewarding yourself when you reach a target is a great way of keeping up the motivation. So, when you do reach your target, make sure you give yourself a little treat and recognize the hard work you’ve put in.
If you’re budgeting well, you get the overall reward of better finances, but that doesn’t mean you shouldn’t have extra motivation along the way.