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If you’re like one of many people in the United States today, then you may be struggling to keep your personal finances on track. But coming up with a budget (and sticking to it) can be hard. Managing your money is about thinking smarter and planning well. You also need to set realistic goals and create a budget that works for you and reflects your personal situation.
Why is Setting a Budget Important?
Budgeting your money ensures that you don’t spend what you don’t have. In the US, the average household credit card balance in 2015 was over $7,000. We’re a nation that’s become used to living on credit according to CBS News.
If you think about the volatile economic climate of today, this can be a dangerous position to be in. While our parent’s generation was accustomed to terms like “job for life” and “pension fund”; most of us has, or will probably, change jobs several times throughout our careers. And finding yourself suddenly out of work with a huge debt hanging over your head is a stressful position to be in.
Before Setting Your Budget
There are different credit bureaus, such as TransUnion, Experian and Equifax, you can get your credit score from. Be sure to check these through thoroughly to make certain that they aren’t reporting any old debts you already paid.
If you do come across any errors, you’ll need to write a letter to the bureau in question (yes, a letter) that explains the error and why it should be removed. While that sounds like a pain in the you-know-what, this is the most effective way of getting your credit score cleaned up, and important if you want to be considered for a mortgage or any type of financing plan.
While we’re on the subject of debt, before you can create a budget, you’ll need to figure out how much debt you have and find a way to begin repaying it. Start with the high interest debts first, such as your credit cards, and set aside a sum of money each month that goes towards paying them off.
Try to pay more than the minimum balance to avoid paying only the interest on the card, rather than the actual balance. Once you’ve finished paying your debts, this money can then be allocated to saving.
A Budget Adaptable to Your Needs
Creating a budget that works for you means that you’ll need to pay attention to how much you earn and how much you spend on a regular basis. There are various tools and apps that allow you to do this, such as Mint and Level Money. Or you can use a tradition excel sheet, or even pen and paper.
Whichever way works for you, start by noting down your most important expenses. This includes the regular, larger things you have to pay for each month, such as rent, your mortgage, insurance, car maintenance and utilities. Next move on to the smaller but significant expenses, such as groceries, gas, public transport, gym membership, etc.
Finally, try to account for miscellaneous expenses,including visits to the salon, one-off clothing purchases, and dinner out with friends. The very best way to create a budget that you can actually stick to is by putting in the research beforehand and learning about your spending habits. With the help of a handy financial app on your mobile phone, you can now record everything you buy as soon as you buy it. Do this for a few months and you will start to see patterns.
A word of warning. You may be alarmed by how much money you actually spend on things you thought were insignificant, such as your daily Starbucks, candy bars, or cigarettes.But once you have a good idea about your spending habits, you can see how much you make, how much you spend, and if you can cut anything unnecessary out of your budget to free up funds for something else, such as saving.
A Rainy Day
Your grandmother probably shared some wise words with you about the importance of stashing some money away for a rainy day, but some people find it hard to save just for the sake of saving, so if you prefer to visualize (and this is a good incentive) what you’re saving for, then set mid and long term goals.
Start putting money aside for a vacation, getting work done on your home, or buying a new place. You can also consult with a financial advisor to find out about retirement options, if you don’t have this benefit from your job.If you want to be creative with your money, you can also ask about ways to invest your money, as this can help you to build a stable financial future.
Find Free Activities
The best things in life are free, right? Or so they say. There are plenty of ways to enjoy life that don’t include spending money. Start going to free events in your town and watch movies instead of going to the theater. Try running in the park, instead of the gym and making spending time with your family at home.
Creating a budget that works for you requires sensible thinking and some dedication, but gaining control over your money is priceless and by implementing these simple steps, you can learn to become financially smart.