Budgeting Guidelines to Plan for the Unexpected
Financial problems are one of the things we can all say we share in the US. Believe it or not, 54% of Americans live paycheck to paycheck, including the ones who earn over $100,000 a year. That goes to show how important budgeting is! Fortunately, if the Covid-19 pandemic has taught us anything, it's that we need to start pinching our pennies more. Well, that's easier than you may think. Let's talk about some budgeting guidelines.
Review Your Statements
If this sounds obvious to you, then good! However, just "winging it" isn't going to be very helpful.
Trying to create a budget without a full understanding of where your money is going (and how it's coming in) is like running an obstacle course blindfolded.
Be careful to only use a couple of cards for a month and to write down anything you buy with cash or checks. Then, take the time and look through your expenses during each pay period.
Break things down into categories and subcategories.
Budget categories should include wants, needs, and investments. "Needs" are the easiest to determine, including your groceries, rent, bills, and basic living expenses. Investments will just be savings and other places where you store your extra cash.
Conversely, subcategories in the "wants" section are where you want to focus, as they can include subscriptions, going out to eat or drink (coffee included), entertainment, and more.
Once you have this list, it will be a lot easier to create a comprehensive budget.
Create an Outline
After you've taken a hard look at your financial situation, it's time to actually craft your budget. Well, creating an outline of your expenses and income is the way to start, so here's what you need!
Follow the 50/30/20 Rule
One common guideline is the 50/30/20 rule, where 50% of your income goes to your cost of living, 30% goes to things you want, and 20% goes toward investments or savings.
Once you review your monthly expenses and income, determine where these numbers fall and see how you can fit them into your budget. For example, if you spend 35% on things you want and discover that you spend 5% on subscriptions you don't use, that's an adjustment you can make.
Believe it or not, the average American spends $273 a month on subscriptions, and not all of them go to use.
If you find you can bring your cost of living below 50%, that doesn't mean you should spend more on "wants". Instead, learn how to start an emergency fund and put the money in there.
If you're looking for simplicity, think of it in terms of 70/30. 70% goes to personal responsibilities and obligations, and you can spend 30% on anything you want.
You can also automate your bills and have 20% automatically placed in your savings. That way, you won't have to think about it at all!
Prioritizing doesn't just have to involve your morning coffee or shopping at your favorite store. It can also involve how much you spend at the grocery store, leaving lights on at your house, and even where you live.
Essentially, you can analyze both your basic living expenses and your preferences under a microscope and consider what is most important to you.
Also, have a "why". Why do you want to budget, and why is saving or investing money so important to you?
Whether you're looking to retire, buy a house, get a new car, or save for an emergency fund, have a reason why and write it down along with your budget!
Create a Written Budget
Don't underestimate the power of writing down your goals. Believe it or not, you are 42% more likely to achieve goals that are written down than ones that aren't.
Also, there's no substitute for having a plan based on your financial situation and goals.
Triggator provides a powerful online budget planner to help you keep track of each paycheck. This tool will not only help you document your spending, it will help you reach your debt payoff goals faster and watch your savings grow. You can start now with a 30-day free trial.
As the next month passes, keep checking your expenses online to see if you're on track with your new goals. Written goals are important, but things don't always work out 100% as planned.
Consequently, take the next couple of months to get the hang of it and see what adjustments need to be made. Some things may seem like they fit into your budget, but ultimately you'll likely need to make some changes. That's ok! It's a learning process, so be patient with yourself.
You may discover that your $4 coffees every morning are adding up to $120 a month or that your $10 lunch break adds up to $300. Reviewing your statements in hindsight is a start, but you must continue to track it as you implement your budget, especially in the early days.
You have an outline, written goals, and a "why". You're at the final piece of the puzzle now.
As time goes on, you need to think about your finances more often. Unexpected expenses will always come up, and you need to be prepared for them.
The easiest way to practice budget management is to simply keep it in mind before making a purchase. Weigh the pros and cons, prioritize, or force yourself to take a 24-hour waiting period before purchasing over X dollars. Whatever works for you.
Helpful Budgeting Guidelines
Now that you know how to outline a budget, you may still have questions about how to apply it to your own financial situation.
Everybody has different incomes and different expenses, so here are some tips on how to fit a budget around your situation.
Look for Opportunities
Look for opportunities to save on regular expenses by joining rewards programs, using the right browser extensions, or applying coupons at your regular grocery store. There are plenty of ways to save on your monthly expenses without having to make any changes to your lifestyle.
Well, that's not all you can do. Budgeting tips almost exclusively discuss reducing your expenses. However, they rarely discuss the possibility of increasing your income.
Start by asking for a raise at work or extra hours if possible. This is one of the most easily attainable ways to boost your spending power without any major lifestyle changes.
Moreover, if you have any skills or passions that can potentially generate income, put them to use and see how it works for you! If it's something you would like to do for a living, a side hustle could turn into a lucrative career for all you know.
Also, we live in a time when it's never been easier to take on a side hustle. If you have a car, you can consider driving for Uber/Lyft or delivering for another gig company. Even with a bicycle, you can do deliveries in some cities and generate extra cash.
If you're reading this, you have internet access. Try freelance writing, video editing, or any other in-demand online skill to help you earn some extra cash. The possibilities are endless.
Budgeting with a variable income is a challenge, as many gig workers will tell you. However, if that's not your primary source of income, then you won't have to worry.
Keep It Simple
By simple, we mean doable. The best analogy for budgeting is following a diet and exercise routine and cutting back on your unhealthy habits.
Essentially, there's a fine line between dieting and budgeting. You want to push yourself to get the most out of it so you can see results, but not too hard that you'll give up.
If your goal is to save 25% every month and you end up saving 15%, or if you want to get out of $10,000 worth of debt next year, but you only end up eliminating $7,000, remember that it's far better than not accomplishing anything.
Practicing better financial habits incrementally is far greater than not practicing them at all. Take the first step and do what's in your power now to start improving your financial health.
Start Saving Today
Now that you know some useful budgeting guidelines and tips, they won't go to any use sitting in your head! Put them to use today and watch your savings grow. The sooner you do, the more grateful you'll be in a year from now.
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