Learn To Budget Money
With the credit crunch hitting many businesses and homes hard at the moment, it’s now even more vitally important than before for individuals and families to learn how to to budget money better in the months and possibly years ahead.
As in all areas of life, and more importantly so with your personal finances, ‘failing to plan is planning to fail’. Budgeting in the home and operating to a financial plan could very well mean the difference to you and your family of having money worries constantly or actually building some savings. Yes, budgeting your money is that important and really can have a dramatic effect on your financial wealth.
So where do you start with your budgetary planning?
Well firstly, you need to know in detail what you’re spending each month and what you’re income is. That may sound obvious, but you’ll be surprised how many people don’t actually have a clue as to where their money is going each month. In the age of the cash dispenser, stores cards and credit cards, it’s all too easy to access cash and make non essential impulsive purchases. These small ‘treats’ soon add up and most people are amazed how much they are actually spending when they analyse their statements in detail.
Your first goal should be to clear your debts to avoid ‘losing’ money on interest and bank charges. If you have short term loans, overdrafts and credit card bills outstanding you need to clear them as quickly as possible. These types of finance carry the highest levels of interest and charges. Your first target should be to consolidate these debts in to one consolidated loan that should carry a lower interest rate than credit cards and overdrafts in particular. Contact your bank or take a look online to see what debt consolidation loan deals are available.
At this stage you should seriously consider cutting your credit and store cards up to remove the opportunity to make ‘impulsive non essential’ purchases going forward. By using only cash, you can control and track your spending better. Handing over cash is a lot more painful than handing over a credit card temporarily.
Pay your monthly bills by standing order, add them together and subtract their value from your monthly income. Next subtract the minimum you need to spend on food each month, together with your monthly car expenses. You should now be left with a figure that is effectively your monthly disposable income. By analysing your previous credit card and bank statements, you will be able to calculate what you spend on food, vehicles, clothes and other items on a regular basis. Analyse these amounts. How much did you really ‘have’ to spend versus what you ‘actually’ spent?
Your financial goal should be to remove all non essential spending until your short term debts are all paid off. It’s going to be tough, nobody said budgeting money was fun! But the long term benefits will be less stress as your money worries are removed. Write down on a piece of paper the items that are essential and put budgetary amounts against each of them. When you get paid, withdraw the amount you need to spend on essentials and divide it into labelled envelopes, one for each item of expenditure. Place the amount of cash needed in each envelope and then only use it to pay for that item. The envelopes will help you avoid unnecessary spending. You’ll be amazed how effective this system is.
Finally apply the 10% Rule to your budgetary plan. Look at everything you spend money on and see if there is a way to reduce it by 10%, in most cases you will find a way. Use these significant savings to reduce your debts. Once your debts are cleared, you should plan to save 10% of your income each and every month as a minimum. You should also plan to save longer term for your retirement.
Above you’ve learn’t some basic tips on how to budget money and improve your personal finances. You’ll find a lot more useful resources on this site for better cash management and ideas on saving cash. Now, go and start your own budgetary planning and start saving money today!
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