Have you ever wondered where all your money have gone after seeing what remains of your savings? You’re sure you had enough left, you even had it calculated in your head, but after paying the bills, you can’t figure out what just happened.
We’ve all been through this awful feeling. We usually experience this at the end of the month and as determined as we are to keep it from happening, destiny still finds a way to crack this bad joke over and over.
We can’t trust our memory. No matter how sharp you think your memory is, you can’t remember every detail unless you have a photographic memory (which most of us don’t).
You may be frugal with your expenses but if you’re not tracking down how much comes in and how much comes out, you are bound to lose money and worse, your savings which is why it is of utmost importance to create a budget.
But where do you begin? Below are some helpful steps to help you create your own budget.
Track Your Expenses
The first step in creating a budget is to track all your expenditures in the simplest way. There are a lot of budgeting apps available for smartphones today and it really depends which one you are comfortable with but we recommend going back to basics via a pen and paper.
Just buy one of those small notebooks that would fit your pocket so you can carry it around. Start writing down every purchase right down to the smallest bit. Once you know where the money goes, you would at least have an idea of how best to allocate and prioritize your money.
Save Before You Start Spending
The common misconception among people who has financial problems is that they need to pay off everything first and what remains will be their savings when it should actually be the other way around. Set aside a certain percentage of your earnings as soon as you receive them.
Automatically set aside 10% for example, using direct deposit then make the most our of what remains. Money you didn’t see is money you won’t miss. As if nothing happened.
Set Your Priorities
Now that you’ve set aside a percentage for your savings, it’s time to start setting your priorities. It can be the house amortization, car amortization, tuition fees, electric bill, or just about anything that is considered REQUIRED. If you can squeeze these all in as 35% of your earnings.
You can spend the remaining money on food, clothes, entertainment or vacations. It will be up to your discretion how to make use of it.
Use Cash as Much as Possible
Now that you’ve set aside money for your savings, spending and investing, the challenge now is to make it stick and resist the temptation of overspending by relying on credit and debit cards.
You have to make the most out of what remains as much as possible and not spend money that you do not own.
You can also start being more disciplined by not using ATM as much as you can. Withdraw a fixed amount every start of the month instead. Doing this will help you make better choices when it comes to your budget.
Pay Your Debt Little by Little
No matter how much you stick to your budget and savings, you’ll never get ahead without paying off any of your outstanding debt.
If you have multiple credit card balances left unpaid, do your best to pay them off even if you have to do it little by little. Follow the snowball effect where you’ll have to pay off the card with the biggest interest first while paying the remaining cards at minimum.
Once you’ve settled your biggest credit card debt, you do the same with the next until you finish all of them off.
The secret to successfully toppling off credit card debt is to know how much you can afford to pay and remain consistent with payment.
Set an Emergency Fund
Regardless of your debt situation, you should also set aside money for the rainy days or an emergency fund. Set aside three to six months worth of living expenses so you’ll have a backup in case you lose a job, have a sudden illness or any unexpected expenses that comes your way.
Better to sacrifice a little now than regret it later on.
Live Within Your Means
Finally, it’s not really rocket science but we need to be reminded time and again to live within our means. Live a lifestyle you can afford and don’t spend money on something you do not need. You can’t build a budget if you’ll remain compulsive and spend money without thinking of the consequences.
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