Budgeting your money is an important skill to help you have a successful future. Proper budgeting can help you save money, pay off debt, or help you realize big financial goals. The Tax Crisis Institute wants to help set you up for financial success and teach you how to budget your money.
1. Be Realistic When Setting Up Your Budget
One of the biggest reasons budgets fail is because they aren’t realistic. It’s similar to trying to go on a too restrictive diet. If you try to cut out carbs and sugar and coffee all at once then you’ll eventually give up because it is too much all at once. The same reasoning can be used for your budget.
Make sure you keep room in your budget for the things you truly enjoy such as gym memberships or that occasional date night. Cutting these things out can save you a few hundred per year but you’re setting yourself up for failure because you haven’t allowed yourself to enjoy life.
Steps to Tell You How to Budget Your Money
Setting up a budget is fairly easy. Here are the steps you can follow:
- Gather all of your expenses by collecting bills and going through your bank account history for several months
- Write down all of your expenses in one column. Don’t forget to include subscription items such as gym memberships or Netflix
- Next, figure out your total net income. You can easily grab this number off of a paycheck to see what your income is after taxes, insurance, and retirement funds have been paid
- If you get bonuses or commission at your job make sure you take an average monthly commission to make sure your budget is more realistic.
- Include in the expense column an “other” expense for items such as birthday presents, gas money for road trips, etc.
- Subtract all of your expenses from your net income and the amount you have left over is what you can use to pay down extra on debt
- If your budget is in the red or if you don’t have any money left over then you should re-do your budget. Analyze all of your expenses and see what you can cut out. Some people might think that new clothes every season is a “need” when in fact it’s more of a luxury that can be temporarily cut out of your budget until your debt is paid off. Always spend less than you make.
Setting up your budget is also a great time to look at all of your expenses to see if there’s anything you can get rid of. For example, is there a recurring payment coming out of your checking account for a service you no longer want or need?
Adjust Your Budget As Needed
After you have outlined your budget, you’ll be more intentional with the money you spend because you’ll see that you haven’t budgeted money for that shirt you really want (but don’t need). Most people don’t stick with their original budgets because it’s either too restrictive or they start realizing they can live without certain things. Make sure you sit down after a few months and adjust your budget.
2. Set Aside Money for Surprise Expenses
Setting aside a small amount of money every month can give you a pretty nice savings for those surprise expenses. If your car suddenly breaks down or if your tires lasted a lot less time than you thought they would, you can take the money from your expense account instead of putting it on a credit card.
3.Budget Extra Debt Payments
After you have created your initial budget you can see how much money is leftover. Instead of just letting this money float around, waiting to get spent, be intentional with placing it somewhere in your budget. A wise place to use this money would be to pay extra on your debt payments. The average credit card minimum payment will take you around 30 years to pay off. However, just doubling that payment can help you pay off the card in 3 years.
The average American has $16,000 in credit card debt and the average credit card interest rate is 19%. If you paid the minimum payment, it would take you 60 years and $60,000 in interest to pay that off. However, just making twice the minimum payment would mean paying off that debt in 3 years and only paying $4,000 in interest.
4. Use Available On-Line Tools
There are plenty of useful and free online tools at your disposal. These tools can help you save time by copying your budget into the next month so you can easily adjust things for a month. These budgeting tools also provide charts and graphs so you can see where your money is going. Some of these tools even allow you to import all your bank account info so you can easily plug your expenses into your budget.
5. Automate Your Savings
An easy way to make sure the money doesn’t get eaten up by all those little transactions is to automate your savings. That means setting your bank account up so that a certain percentage of every incoming paycheck goes directly into your savings account. It’s done on the same days every month and is completely automated so you don’t have to even think about it.
A good rule of thumb is to aim to save about 20% of your income. However, if you aren’t used to saving then you can start off much smaller. You can save 1% the first month, 2% the second month, and so on until after a couple of years, you have the 20% going into your savings. These small increments will help you see that you can live on much less than you think you need.
The Tax Crisis Institute Can Help You!
Our team at the Tax Crisis Institute can help you protect your finances. We want to make sure that you have the tools to help you succeed and attain your financial goals. We’re happy to serve you here in Bakersfield, California and surrounding areas. Call us today so we can help you out!