There are a lot of discussions about whether debt is good or bad. Some say that debt is the only way to acquire wealth, while others claim that debt can get you in financial trouble and make you live paycheck to paycheck.
One thing is for sure, debt is good, but only if you use it in the right way. On the other hand, it can have huge consequences on your financial life if you don’t manage it properly.
This is where budgeting comes in handy. Creating a monthly budget is the best way to save, and invest some money. So, where to start?
Creating a budget requires you to consider a few tips, and in today’s article, we will highlight most of them and help you create a stable budgeting strategy that avoids unnecessary debt.
What exactly is a monthly budget?
A monthly budget is an outline of how you want to spend your money each month. Monthly budgets are popular since many recurrent costs, such as rent, utilities, credit card payments, and other loan obligations, occur on a monthly basis.
Your budget should ideally include spending less than you earn each month, allowing you to save money. Furthermore, if your spending does not exceed your earnings, you will not have to dip into savings or borrow money to make ends meet.
Track Your Spending Habits
If you don’t know what and where you’re spending each month, chances are your spending habits may be better.
Spending awareness is the first step toward better money management. Use a money management tool like Genome.eu to track your spending across categories and discover how much you’re spending on non-essentials like eating, entertainment, and even that daily cup of coffee. Learn more here.
You may establish a strategy to modify your behaviors when you’ve educated yourself on them. This is the first step of running out of debt and creating a successful budgeting strategy.
Save as Much as You Can, Even If Take You a Long Time
Make an emergency fund that you may use when unexpected events occur. Even if your contributions are tiny, this fund can rescue you from potentially dangerous circumstances in which you are obliged to borrow money at excessive interest rates or are unable to pay your payments on time.
You should also contribute to a general savings account to increase your financial stability in the case of a job loss.
Consider Your Financial Priorities
After you’ve spent some time tracking your spending, it’s appropriate to look back and see how your spending matches up with your financial priorities.
Everyone has unavoidable expenses such as housing, food, and transportation. However, if you don’t keep track of your expenses, it’s simple to overpay formany items.
Learn more on how to set financial priorities here.
For example, you may discover that you are spending hundreds of dollars per month on takeaway meals or that you have a slew of monthly subscriptions, ranging from streaming services to gym and club memberships, that you seldom use.
Reduce Reoccurring Expenses
Do you pay for services you never use? It’s easy to overlook monthly subscriptions to streaming services and mobile applications that charge your bank account even if you don’t use them frequently.
Examine your budget for such costs and consider eliminating needless services to save extra money each month.
Begin Developing an Investing Strategy
Even if your financial resources are limited, making tiny contributions to investment accounts can help you leverage your earnings to produce additional income.
Find out whether your company gives 401(k) matching, which is effectively free money. Consider establishing a retirement or other investment account.
Changing your personal behaviors is the first step toward improved money. Some of these adjustments will be more difficult than others, but if you stick with it, you’ll end up with amazing money management skills that will serve you for the rest of your life—and, in the meanwhile, you’ll have more money in your pocket.
Try the 50/30/20 Budgeting Plan
People often ask themselves, how much should they save from their salary? – Well, a good way to answer that question is with the 50/30/20 budgeting rule.
The 50/30/20 rule is a budgeting approach that divides your money into three basic categories depending on your after-tax income (i.e., take-home pay): 50% for needs, 30% for desires, and 20% for savings and debt payments.
50% — Needs
Needs are costs required for survival and basic well-being. Housing, utilities, food, transportation, healthcare, and childcare are all examples.
30% — Wants
Wants are typically referred to as non-essentials, yet they allow you to customize your budget. Including some fun in your budget, whether it’s self-care or dining out, may make you more inclined to stick to it.
20% — Savings and Debt Repayment
The 50/30/20 plan promotes savings and debt reduction, but the mix of savings or debt payments will be determined by your unique circumstances.
The golden rule of creating a successful budgeting strategy is to analyze and trace back your spending habits. After analyzing their transactions, most people find out that they spend money on things that they don’t actually need or use.
So, if you want to create a successful budgeting strategy that will help you get out of debt, and also invest some of the money, make sure to follow the tips we mentioned in this article.