Times are tough. But that doesn’t mean you have to struggle as a result. Nailing down a budget is a great practice to stay on top of to weather even the worst financial storm. But this can be so much easier said than done – especially if you’re not accustomed to tracking your finances closely. But if you’re dedicated to reaching your goals and securing your future, it’s more than worth it to put in the extra effort to budget. Read on to learn some of the best tips and tricks to improve your financial health.
This might seem like a no-brainer but in a world of auto-payments and endless monthly subscriptions, it’s not always obvious how much our monthly bills actually total out to. At the end of each month, look ahead to the following month.
Break down your bills per pay period. If you get paid biweekly, take note of the recurring bills you’ll pay for with the first check and then the second check. Do the same with any other pay structure you may have. This will help you track exactly how much of each paycheck will go towards your bills.
Automatic payments can be extremely helpful in managing your finances. If you do choose to set your payments up to come out of your bank account automatically, it’s still important to check your statements. Your bills may change from month to month. Keep an eye on how much you owe so you’re not surprised by any additional charges.
Restraint is vital when it comes to creating financial security. If you don’t have a clear breakdown of your expenses – bills, groceries, gas, and other needs – you might dip into money you actually shouldn’t be spending. Get clear on what you need every month for expenses then you can allocate what’s left over for your “wants”. This is referred to as the “zero budget method” where every single cent is assigned a purpose. This makes it so there’s no question about how much money you have in a given month for expenses and fun.
Debt can be a monster to tackle. Whether you’re paying down a credit card or you’re dealing with a mountain of student loans, it’s vital to have a plan to chip away at debt. Interest will compound each month. Start with your smallest line of credit and put as much into it as you can. Pay the minimum amount on all the other accounts until you completely pay off your smallest one. Once it’s completely paid off, start to pour more into your next smallest account, and so on and so forth. This strategy is called the “debt snowball”, coined by Dave Ramsey. Focusing on getting your debt in check will be one of the best things you can do for your overall financial health.
While you’re tackling debt, it’s in your best interest to minimize your credit use. It can be tempting to put that fancy TV on your card or take out a loan on a car you’ve had your eye on, but it’s best to resist adding to your total owed debt while you’re paying it down.
If you’re not dealing with large sums of debt, you can approach debt and credit card use a little differently. When used in moderation, credit cards can be a great tool for bolstering your credit score. If you’re using a credit card in this way, be sure to pay your bill in full every month to avoid interest charges.
Make room in your budget for savings. When you’re struggling to manage a budget or it seems like you never have enough to set aside, it’s easy to skip out on this step. But it’s vital to make steps towards building up a savings account.
A good rule of thumb is to put at least 20% of your income towards saving. This is a tenant of the 50/30/20 rule – 50% towards necessities, 30% toward non-essential expenses, and 20% towards savings. If you can’t do 20% with your current budget, simply put as much as you can budget in. Even $10 a paycheck is better than nothing!
The goal of creating and maintaining a saving account is to have a cushion for emergencies and save for the future. There is obviously no limit to how much you can save but you should aim to keep at least $1000 in your savings account at all times to account for emergencies. Some people also like to set aside at least three months’ worth of money they can live off of if need be.
Budgeting can be a lot to maintain. Luckily, there are plenty of tools you can use to make the process easier. If you’re a fan of doing things manually, you can turn to a planner or spreadsheet. There are also plenty of digital tools that can actually sync with your bank account and bills to automate your budgeting process. Some good ones to explore are Mint, You Need a Budget (YNAB), and Simplifi. If you need extra support consider teaming up with a financial coach.
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