Saving money or budgeting is something most of us need to do at some point in our lives and is something we should be doing more often to ensure we are staying in control of our finances. Sadly, lots of people are in debt. Click here to see an interactive map of consumer debt in America.
We want to avoid getting into debt, and the best way to do that is by creating an effective budget that will work for you!
Create a Budget Customised for You
Creating a budget that is tailored to your lifestyle is so important to avoid debt and put you in a good financial situation. Here’s why:
1. It’s easier to stick to
A budget that works for you is a budget that you can stick to. It needs to be realistic and achievable. And if it’s not, it needs to be flexible enough for you to make adjustments as necessary. To create a budget customized for you, follow the steps below:
First, start with your income and set your spending goals. This will help you determine how much of your income will go towards mandatory expenses such as debt payments and how much can be allocated towards savings goals or discretionary purchases such as entertainment.
2. We all have different financial situations
We are all in different financial places so trying to follow a generic budget or saving plan may not work for you. Take a look at your current financial situation such as debt or credit card balances and set up a plan or timeline for paying off those debts so they don’t continue to accumulate interest over time.
Having debt will change your budgeting plans for sure. You should always pay the debts that cost you the most interest first. Even before saving money. Why would you want to have £1000 in savings earning next to no interest if you have a debt of £1000 that’s costing you £15 a month in interest?
When creating your budget, take in to account your debts and which ones are best to pay off first – either the higest interest or use the ‘snow ball’ method where you pay the lowest owed debt first and just put the minimum payments on the rest, then once that is paid off, move on to the next debt. You can also look into debt consolidation. This is where you lump all your debts together and pay just one monthly fee a month.
3. Different things matter to different people
When it comes to budgeting, we all have different personalities, hobbies and pleasures in life. Unless your financial situation is to the point where you are stressed or unable to pay it back (you need to get some professional financial help if this is the case!) then you should allow a bit of wiggle room.
If you do need help with your debt problem, then you can contact Step Change, a free charity for advice.
It’s easy to say ‘no takeaways, stop buying alcohol and cancel Netflix’ but you really have to enjoy life. It’s okay to have treats on occasion and put that in your budget. I usually give myself about £350 a month which is for clothes, hobbies, eating out or other things. If I don’t spend that, I put it in my savings at the end of the month.
Create A Budget That Works For Your Situation
So now we have established why it’s important to tailor your budget to your lifestyle, it’s time to create a guideline of how you plan to spend your money. The goal is to stay within your budget and avoid going into debt.
There are two main types of budgets:
– A monthly budget – A yearly budget
The first step in creating a personal budget is to figure out how much money you make in a month and divide that number by the number of weeks in the month.
Next, create a list of all of your monthly expenses such as mortgage or rent, car payments, car insurance, utilities, food shopping, children’s activities and entertainment costs. Add up these individual costs and compare them with your total income from the beginning of this process. If you have more income than expenses then congratulations! You have more than enough money left over each month which
This is a good tie to review your spending and ask yourself if you can make any changes. Do you need to spend as much on food as you are? Can you switch utilities to a cheaper provider? Anything that gets extra money into your savings and investments is a win.
Think about What Matters Most and Create A Budget That Will Help You Get There!
The key to successful budgeting is thinking about what matters to you right now and thinking of your financial goals for your future (eg getting a mortgage, becoming debt-free, enjoying one family holiday a year). After identifying what matters most, it’s important to create a budget that will keep you on track with your goals.