Budgeting Effectively, the Foundation for Financial Wellness

Budgeting effectively is an imperative skill to have, in fact, it is the foundation for overall Financial Wellness, and a fundamental piece in achieving financial freedom preserving your wealth.  However, recent studies have demonstrated that only 1 out of 3 Americans create a budget every month. It is not an easy task, but it also doesn’t need to be frightening or overwhelming.  Here are a few suggestions to help you budget effectively and start saving money:

  1. Know how much money you make.
  2. Know your monthly recurring expenses: Some of the most common are:
  • Rent or mortgage
  • Utilities and insurance
  • Groceries
  • Gas and/or transportation
  • Loan payments (student, auto, etc.)
  • Minimum credit card payments
  • Desired savings, investments, or additional debt payments
  1. Determine how much money you will save: Deduct your monthly fixed expenses from the amount of money you bring home every month, that is the amount that is left to save; now you can designate an amount to each of the categories you want to save for (i.e. holiday fund, home repairs, college savings, investment accounts, etc.)
  2. Asses your Financial Situation: Are you spending more than what you are bringing home? To know this, start by breaking down all your expenses separating them into 2 categories: “Needs” and “Wants”.
  3. Identify your problem spending areas: Keep them in mind while working on your budget; these are the areas that would need to be adjusted.
  4. Reduce your spending: Take a look at the expenses in your problem spending areas. Focus on the ones listed under the “wants” category and find a way to reduce some of them.
  5. Tackle your debt: Find a repayment plan, you can decide to pay off either your smallest or highest debt first; seeing your debts paid off will help you build the momentum to stick to your budget.
  6. Think about the return on investment: There are two types of things you can buy: Things that put money back in your pocket and things that take money out of your pocket. Keep this in mind when spending your money. Things like mutual funds, dividends, rental properties, etc. are some of the ones that could put money back in your pocket.
  7. Set realistic saving goals: Once you know your spending habits and saving abilities, set realistic goals. This will help you stick to your budget.
  8. Have an emergency fund: This is the money that will keep you from getting into debt when the unexpected happens. Ideally, it is suggested to have 6-12 months’ worth of savings. However, if that is not possible, make sure you have a decent amount of money sitting in cash for when those unforeseen expenses show up.

 

Works Cited

“Practical and Best Ways to Budget Your Money and Save More.” My Money Design, 24 Sept. 2017, www.mymoneydesign.com/personal-finance-2/savings-budgeting/best-ways-to-budget-your-money-and-save-more/.

S, Pat. “Topics.” Money Crashers, www.moneycrashers.com/how-to-make-a-budget/.

“Saving Money Tips – 8 Simple Ways to Save Money.” Better Money Habits, 16 Nov. 2017, bettermoneyhabits.bankofamerica.com/en/saving-budgeting/ways-to-save-money.

Weliver , David. “These 4 Easy Steps Will Teach You How To Budget (Finally).” Pardon Our Interruption, 31 Jan. 2017, www.moneyunder30.com/no-more-budgets.

Wong, Kristin. “How to Budget When You’re Broke.” Two Cents, Twocents.lifehacker.com, 10 Apr. 2014, twocents.lifehacker.com/how-to-budget-when-you-re-broke-1561620381.

 

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