Budgeting: The First Step To Financial Freedom
Proper budgeting is essential if you’re going to make progress with your finances. Think of it as a roadmap to a secure financial future.
It’s best to start by keeping a note of your daily spending habits. Track your spending for at least two weeks.
Most of us have a selective memory when it comes to the small items that we buy—you might have gone into the store for monthly groceries, but we are willing to bet that you left with a few unintentional extras.
Once you’ve seen where your money goes, you can create an accurate budget.
List all your essential living expenses, like rent, power, and so on. Then, list your necessary grocery expenses, too. Now, create a second list with all the other expenses.
Calculate both lists and compare the overall figure to your income. Do you have any wiggle room within the budget? Great.
If you are coming up short, don’t beat yourself up too much. 50% of Americans have maxed out credit cards; for you, the situation is challenging, but not impossible.
The next step is to decrease your expenditure or expand your income stream. Where can you cut back? What side hustle can you start to earn a bit of extra money?
Freelancer sites like Upwork provide access to a wide pool of potential work, for example.
If you can’t make up the deficit, you’ll need to consider a consolidation loan or negotiate a lower repayment structure with your creditors. Neither option is ideal, but it will give you some breathing space.
Brace yourself: you need to know how much you owe overall.
Make a list of all the accounts and loans you have, including:
• Monthly installments
• Outstanding balances
• Interest rates
• Annual payments
It’s sometimes shocking to see your debt laid out in this way, but it’s also essential for managing your personal finance. If you know where you stand, you can make improvements.
Common Money Mistakes And How To Avoid Them
There are a few money mistakes that we all make:
Ignoring the Situation
Hiding from the situation will land you in trouble. If you’re battling to make the minimum monthly payments, speak to your creditors. The company will be more willing to help if your account is up to date than three months in arrears.
Honor any arrangement that you agree to follow to stay on top of it.
Budgeting for Money You Don’t Have
Many of us pin our hopes on a promotion or annual wage increase, but it’s better to work with reality. If you have to juggle creditors to pay for a new car, you can’t afford it.
Setting Huge Financial Goals
It’s great to envision paying off your home, but it’s a long-term commitment. Set some small goals to keep you going, like the simple method called the 52-week technique.
The dollar amount matches the week number: in the first week, save $1—double this (to $2) in Week 2. The next week, save $3, and so on.
By Week 52, you’re saving $52. You’ll barely notice the weekly amount to save $1,378 over a year.
Thinking More Credit Will Solve Your Problem
It’s tempting to get a payday loan or another personal loan to tide you over.
It is digging yourself a deeper hole, though. Steer clear of new credit.
The exception is a consolidation loan, but there’s one caveat—you should use a good portion of the extra money to pay down the consolidation loan principle. If you spend the excess, you’ll end up owing a lot more interest.
Let’s get to the finance tips to help you save more money.
Simple Finance Tips to Help You Save Money
Do you want to know how to save money? It’s easier than you think.
Conduct an Annual Review
An annual review of your insurance, gas company, and other commitments is essential.
Companies like Gas South and MetLife tweak the products regularly to stay competitive. You can benefit by calling around or using comparison sites for quotes.
Using Cash to Control Spending
A credit card is convenient; cash isn’t.
In budgeting, using cash is a visual reminder of how much you’re spending. Draw the cash you need for a week. When the money’s gone, that’s it – there’s no more spending for the week.
Review Your Situation Periodically
Does your overall credit card debt scare you? Good.
Review the balances on your accounts every three months to stay on track. Pay off small debts first and apply those installments to the next ones on the list.
Over the long-term, it’s better to tackle the higher interest debt first. There’s nothing as motivating as closing out an account, though.
Keep it up, and you’ll soon dig your way out of debt.
What other tips have you learned to manage your money?
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