Many of us don’t take our money seriously when we first start earning, which sometimes results in acquiring debt or a sub-par living standard. However, it is never too late to begin managing your money in a way that proves to be beneficial for you in the long run.
However, getting hold of one’s personal finances starts with budgeting. No matter how little you make, a carefully planned monthly or weekly budget can significantly help you pay off your debt and raise your living standard.
So without further ado, let’s take a look at some grown-up budgeting tips:
Make a Spreadsheet
The first and foremost way to take control of personal finances is to track them! The most common way is to track expenses with a spreadsheet; take a pen and paper or open a word or excel file on your laptop to begin.
Next, make two columns titled “inflow” and “outgo.” It is essential to write down the incoming money to be compared with the money being spent later on. In the incoming money column, jot down your income or any extra money you receive in that particular month. For example, if you have received a cash gift a month or if you happen to take up a side job during summer, you should include what you earn from it in the incoming money column.
Divide the money outflow column into rent, utilities, commute, debt repayment, groceries, and other similar essentials. You can also utilize an app or software for this purpose.
Once you have decided on a method and divided the columns into different categories, you need to keep them updated. Write down all your expenses as they occur. If you face difficulty remembering your expenses, saving the receipts can help. You can also choose between writing down the expenses as they happen or at the end of the day.
Choose a Budgeting Model
Creating a budget on your own can be challenging, but following a budgeting model can make the job considerably easier. Depending on your income and lifestyle, you can choose any popular budgeting models such as pay yourself first, zero-based budgeting, or the 50-30-20 rule.
The pay yourself first model requires you to set aside a certain amount as saving or debt repayment as a priority. The remaining amount is then utilized for needs and wants. Comparatively, zero-based budgeting requires you to save, spend, or invest all of your money in a way that you are not left with any money to spare. Finally, the 50-30-20 rule requires you to divide your money into essentials, wants, and savings, respectively.
As a beginner, you can try the different budgeting models until you find the most convenient one for you to follow. If none of the budgeting models fit your income and lifestyle perfectly, you can also tweak the one that suits you more than others. However, sticking to a budgeting model for at least three months can help you master it. Even if you don’t master any budgeting model, it will still equip you with basic knowledge of mastering your personal finances.
Track Your Money
Tracking your money is an extensive approach. However, it is more effective than choosing a budgeting model as it gives you a complete insight into your finances and allows you to develop a budgeting model that best fits your needs.
Writing down every expense you make for a given period – let’s say,six months – will show you the pattern of your spending habits. Observing these spending habits will allow you to see how much money you spend on essentials and how much you can easily save. Cutting out spending habits on unnecessary wants and luxuries will allow you to focus on spending money where it can benefit you.
For example, if you don’t pay off your debt, you might acquire a greater premium on it. On the other hand, regularly paying off debt will eventually reduce the debt amount and reduce the premium you need to pay. Your credit cards may also max out if you keep spending money without paying it off. The premium on credit cards can also increase if you don’t pay off the amount as you spend it.
Some people try to replace credit cards with payday loans, but they charge even higher interest rates. In reality, it is much wiser to keep only one credit card to build and maintain a credit score and only utilize payday loans for emergency expenditures. The only advantage of payday loans is that you can usually get one even with bad credit, which is why they come with significant premium over other types of loans. If you find yourself in such an unfortunate situation, there are websites than can help find a payday loan for you.
Last but not least, no matter how you budget your monthly income and expenses, make sure you end each month with some money leftover in your account.
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