Debt Management – Budgeting Your Money
Many people ignore one of the most obvious methods of wealth building: budgeting their money. Nobody will ever be able to increase their wealth unless they know how much money they have and what they spend it upon.
This means if you want to have money available you will have to budget. Fortunately, budgeting isn’t that hard or complicated.
Create a Budget
The first step in budgeting is to create a budget. All you have to do is simply sit down, look at your expenses and your income. Then write out how much you need to spend to pay off your expenses on a piece of paper.
Most people fail at budgeting because they make a budget that’s too rigid and neglect two important aspects of a budget. Whenever you create a budget always include a savings and a cash reserve. Try to put 10% of your income in savings and 10% in cash reserve. Savings is money you are storing for the future, a cash reserve is extra money you can use for emergency and unforeseen consequences.
Having a cash reserve is vital because you won’t have to use credit cards or dip into savings in most situations. If the cash reserve is still at the end of the month, leave it. That way there will be extra funds available.
A good rule of thumb for budgeting is to try and budget a little more than you actually spend for items. If the grocery bill is normally $500, budget $550 for groceries, this way you won’t have to use savings or cash reserves if grocery costs are a little higher. Do the same for other expenses.
Staying on Budget
It is a good idea to compare your budget and your expenditures about once a week. Simply sit down and look over your expenditures and your budget and see if you’re staying within it.
A good way to keep track of your spending is to make all your purchases with a debit card. That way you will have a written record of your spending in the form of your statement. You will also have an online record of your spending that you can check.
Try and make as many purchases on debit card as possible. This way you can see if your budgeting is working or not.
Another good budgeting tip is to avoid automatic payment plans and checks. Instead try and pay as many bills as possible by using electronic bill pay. This way you will know what money is going out, when it is going and that only payments covered by the funds in your account. Use the electronic bill pay that requires you to initiate the payment yourself.