Ever feel like you should have more money than you do? For many, it seems that the challenging work that goes into earning a paycheck is whittled away too quickly. We all want more money in our pockets, for everyday things and emergencies, but how can we make more of it from the same amount? The answer is smart budgeting and here are five tips to get started.
Identify Your In and Out
One of the first steps in establishing a budget that works is determining how much money you have coming in each month and how much you have going out. The easiest way to do this is on a spreadsheet or even on paper. Calculate your monthly income after taxes. This is the golden number that you never want to exceed. Next you will want to sort through all your bills and expenses. It is easy to forget things which is why this may take more than one sitting. Go through your credit card and debit card online activity. Prefer doing your accounting through your smartphone? You may also want to try out one of these 7 fantastic bankroll management apps to help you manage your funds.
Next try to categorize the items. The first category will contain expenses you cannot live without – your mortgage or rent, water, gas, electric, insurance and car payments. The next category are bonus splurges such as cable TV, Netflix, subscriptions, spa services and gym memberships. The third tier of spending are absolute “wants” like buying a cup of coffee or going out to eat. This process will allow you to see exactly where you spend your money and where you can possibly make cuts.
Find Budget Destroyers
Do you have a daily Starbucks addiction or have every movie channel available through your cable provider? Many people don’t realize that they can quickly add up. For instance, if you spend $5 on that Frappuccino just three times a week, you are spending $780 per year. What if you saved this money you typically spent on coffee? By the end of the year, it’s money that could be used towards a vacation or home improvement project. Coffee is just a common example, but there are others like going out to eat or grabbing those extra items at the grocery store that aren’t on your meal planning list. Find out what trivial things are making a big negative impact on your budget and eliminate them.
Set Aside Emergency Funds
Now that you have determined exactly how much money you have coming in and have worked on ways you can cut unnecessary items, you will want to find how much you should have in emergency savings. Most financial advisors suggest you have at least six months’ worth of living expenses in savings. This number will be simple to determine. Look at the spreadsheet you created that calculated your monthly expenses and multiply this by six. It may take some time to set this money aside, however it will be a wonderful safety net when unexpected illnesses or job losses occur.
Pull Out Cash
While saving is important, life is short, so a budget doesn’t mean you can’t splurge every occasionally. A debit card can be trouble for many because you don’t see the actual cashflow. Therefore, many experts suggest the cash method to really help you stick to a budget. Using the same spreadsheet, decide how much is wise to spend on frivolous items such as drinks and dinners out or a round of golf. Each month pull out that exact amount of cash, whether it is $50 or $300. Once you run out of cash, you must wait until the following month. However, if you have leftover money, you can have a little more fun in the future. This strategy teaches you to be more conscience of your spending.
When you do have to spend money, make it count. There are many credit cards that offer money back. If you are a frequent traveler, maybe an airline of hotel credit card would be worth looking into. Don’t forget to always sign up for coupons, store sales and free loyalty programs where you will earn money or perks when you spend. It is all about paying more attention and be more deliberate when you spend.
How do you keep your budget in check?