If you are a credit card user but fail to pay off dues on time, then you may be slowly building up your bad bed debt each month. This may ultimately put you into huge financial trouble. If you feel that that you are losing control, then it is essential to take charge of your finances with effective planning and budgeting to get back into the track.
Many people find budgeting a big hassle, which can be handled well only by corporate finance professionals. However, many individuals successfully maintain their household budget as the best way to avoid or get rid of debt problems. They spend money in a balanced way and also save money to achieve their life goals. In fact, budgeting doesn’t need any tedious effort.
With the right strategy and positive approach, it becomes easier for anyone to maintain an accurate home or business budget. There are many online/mobile applications also now, which make this task easier. The banks and other financial institutions to provide financial planning support for individuals to have a better hold on their finances and budgets.
The below tips will help support in building an active budget and if you already follow one, then use these as reference points to refine your budgeting strategy and make it more perfect.
1: Budget for your realistic income, not for what you are supposed to receive
This is an important and primary budgeting tip. This is crucial when you have to take care of things like child support or alimony. If your ex-spouse doesn’t pay what they ought to, then it may shatter your budget. You may not be able to depend on such expected income if it is not consistent. So, always budget for the actual receivables to manage thing realistically.
2: Your savings must be included as a fixed expense in the budget
One big mistake people tend to make is that the savings are not put as a head in the budget. They consider it mostly as a variable, which can or cannot be taken care of at your comfort. You shouldn’t think of it only at the end of the month with whatever left in hand, but instead, it is a good approach to ensure it at the first point itself that you set it as a goal.
Have savings as an important entry in your budget. Determine what you can afford to save each for each month. You should ideally be saving at least 5% to 10% of the total income. Based on the expected receivables, you can set this amount as a fixed expense in the budget. Consider it as another payable bill, and the beneficiary is always you. Once if you make it a habit, then you can keep it up and ultimately benefit largely from it.
3: Split the direct deposits to meet the budget goals
Once if you decide on your savings, you may even ask your payer to split the deposit of your salary into two accounts. You can ask to put a fixed percentage of your paycheck to the savings accounts and the rest into the checking account. As Libertylending.com experts suggest, this is a unique way to ensure a consistent saving.
At the beginning of your savings, you can decide how much more you can open a savings account. For example, some tiered saving options of Money Market Accounts (MMA), etc. will offer a higher rate to such savings so that you may earn much faster than traditional savings. Based on the interest rates, you can think of splitting your savings itself into fixed deposits and other bonds which give higher returns.
4: Include the expenses for every small an incident
Even when you spend $2 at the vending machine daily at work, it comes up a total of $500+ a month. People tend to miss out such small cash purchases in their budget. It seems so small and insignificant at one incident, but such petty expenses may add up to huge sum over time. So, instead of being small or big, including all incidental expenses in your budget check.
These types of expenses are most of the time discretionary as they tend to be just wanted than core needs. Putting an eye on them will give you the option to make it a line item which may be cut off if you have to focus on cash flow.
5: Divide the cost for food into further categories
The more you can effectively break up the expenses into different categories, the better your chances of savings are. One common expense which you can better monitoring through further breaking up is the expense for food. According to the Bureau of Labor Statistics, an average US household tends to spend around 12.5% of the family budget on food.
The food expenses on a budget may largely vary based on how much you cook at home versus eating out. Buying groceries and cooking at home tend to cut off the food budget largely. Food is a necessity, but most out their make eating out a luxury. So, it is sensible to split your food budget into groceries and discretionary expenses like dining out. You can review this over time, and then decide whether there is a need to cut back on it.
6: Set some practical targets and flexible expenses
One of the most important and difficult decisions while preparing a budget is to account for the varying expenses. The cost of variable expenses may change from month to month or at different seasons. There are two ways to account for flexible expenses as:
- Consider the average of last three months to set a ballpark figure as a target.
- Consider the highest spend in each category of varying expenses and set your target.
It is best to consider each of these options for specific entries. For example, you can consider the 3-month average for groceries or pet care. But this may not be ideal to consider in case of fuel for your vehicle or power bill. In this case, you can consider the yearly high as the target, and consider making seasonal adjustments to keep the budget more balance.
In any case, you need to be realistic and analytical to stick to the budget and running it properly. Once if you made it a habit to run on a budget, it becomes much easier to gain complete control over your finances and keep debts at bay. Proper budgeting plays a crucial role even when you are trying to get rid of debt and get back into the track.
Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, and Social Media. She loves to share her knowledge and Experts tips with her readers.