We all know that budgeting can be hard but understanding your needs and sticking to a plan can help you save money in the long run. Planning can help you save money for emergencies and even help you save money for retirement.
According to the Urban Institute, about 77 million Americans, or 35% of adults with a credit file, have debt reported in their credit files. Nearly one-third of Americans pay the minimum on their credit card each month, according to FINRA’s National Financial Capability Study.
Budgeting is a habit that we all need to create for ourselves. Read below for a few budgeting tips we think you shouldn’t ignore:
Understand why you are budgeting
First, you need to understand the reason why you are budgeting, to begin with. There are many people that decide one day that they need to budget and save money, and there is no real motive behind it.
Instead of doing this on a whim, be more strategic about it. Understand why you need to budget, what led you to this point, and then start to make your plan.
Look at how to cut costs
Look at what you are spending your money on currently, and see how can you change this. What are the things you can take out of your weekly or monthly purchase cycle?
Once you answer this question you can make a list of things you need to spend your money on and things that can wait a little longer. As mentioned in Forbes, and popularized by Senator Elizabeth Warren in her book, All Your Worth, try this approach: 50% of income goes to necessities, 20% to long-term savings, and 30% to lifestyle choices.
When you understand what you are doing currently you can adapt your monthly budget to this.
Create a Countdown for Big Purchases
Let’s say you have decided to go back to school, buy a car, or go on a summer vacation, what do you do? Make a plan. A decision like this usually doesn’t happen randomly or out of the blue. You have thought about this decision and have decided that this is the best option for you is. So create a countdown.
Take a look at how much money you will need to spend and when you would like to make this big purchase. This way, you will know about how much money you should be saving each month to get to that point. Of course, you may need to pull a bit more money from your savings or borrow money from the bank, but it will be much less because you saved and made a plan.
Use Cash, Don’t Charge It
Once you understand your reasons for budgeting, and how you want to cut costs, you will know how much money you should be spending weekly on everyday items. Now take this amount of money out and use cash.
We all know it’s much easier to pull out your credit card and just charge every single purchase you make. But then, you run into the mall and you end up accidentally buying the pair of shoes you have been wanting or that watch you saw last week. Then, there goes your budgeting and your money. Once you get used to it, using cash will be a lifesaver, or at least a money saver.
At the end of the day, you need to be realistic about your budgeting. It is very difficult to go from spending $600/week to just spending $200/week. This may take baby steps to get there, but make a plan that makes sense to you and stick to it. It takes about 2-3 months for you to get used to your new spending habits and it takes practice. So, don’t get upset if it takes you a bit longer to get the hang of it.
The sooner you implement your budgeting tactics the sooner you will be on your way to reaching your financial goals!