This is a guest post from Stacy, the founder of www.spendingsavvy.com, a financial blog that talks about how to manage your spending with cards and how to WIN at it!
If you want to be financially successful, in addition to ensuring steady income streams, one of the main must-dos is budgeting. This is because regardless of how much you earn, if you do not know how to manage your money well, you be broke or living hand to mouth very soon.
Budgeting simply means planning how you will spend your money. There are a few things to consider in order to get this right.
My first rule of budgeting is Be Aware. Know your expenses. You should have a fairly good idea what your recurring expenses are- utility bills, school related expenses, groceries, transportation, etc. Everything. You are doing no one any favors by ignoring expenses or pretending they don’t exist. If you must pay them at some point, plan for it.
Write down all of the known expenses and the approximate or exact cost each month. Include entertainment or additional expenses you know you usually incur. If you regularly give money to anyone, include that as well. If you purchase coffees or snacks at work, ensure you include those as well. Even small expenses add up over time and seeing the total in writing often helps to put things in perspective. Put dates beside each item so you know when bills are due.
Now that you are aware of all expenses the next step is to plan how you will pay them. If your expenses exceed your income there are several things you must immediately do.
1. See what items can be cut back from the list. Remove all non-essential expenses.
2. See which items can be replaced by less expensive options
3. Explore which items can be put off for later payment or can be paid partially (this may involve getting agreements with those you owe)
4. Explore whether you can work more hours (for more pay) at your current job, if not, can you can a better paying job or, try to find a side gig that can help you earn enough to cover the shortfall in income.
Once you have addressed the above, you will be in a better position to move forward with managing your money.
Pay yourself first.
Make the first item on your budget your savings/investments. This long established practice that has proven to be best for increasing your personal wealth. It’s best if these savings come out of your pay via salary deduction or direct debit so that the funds go directly to a designated account that you do not spend from. Your expenses must then come from the rest. It is recommended that this is at least 10% of your salary, however, if your finances don’t allow, start at an amount you can afford and increase it as your circumstances improve. Don’t just save whatever is left over after you pay bills.
It is critical that you stick to your list when paying your bills. Ensure you don’t have too many surprises or overruns especially when shopping for groceries or clothes.
Again, make lists and stick to them. This can make or break your efforts to balance financially.
Check off items as you pay them and make notes about actual amounts so you can improve your budgeting in the next month.
Here are a few other ways to help you stick to a plan each month:
· Use various means of getting items cheaper- buy in bulk where sensible (team up with a friend if you have to), use coupons, use loyalty cards
· Don’t give/lend money if you can’t afford to
· Live within your means
· Use budgeting apps to keep you on track. Set up alerts for when you reach a high or low spending level so you know when to make changes, if necessary. Do a quick search on the internet to find the one you like best. There are many good free ones.
· Pay bills on time. Multiple late payments can derail your next month by adding unnecessary late fees to already high bills.
· Some persons suggest you use cash only to pay for things so that you don’t spend more than you can afford. Personally, I dislike the idea of using too much cash- if you lose it you may not get it back and I find it harder to track. If you find that this method works for you, then go for it. Take out cash that you will need for short periods and ensure you keep a track of how much you spent and will need to spend.
· Use credit cards to pay. This is also a challenging one for some persons and must only be done if you pay your full statement balance, on time, each month. However, it is also an excellent way for you to see exactly where you are spending your money. See my blog spendingsavvy.com for details on how to do this. You can also earn reward points that can help pay some bills.
· If you finish paying off a bill (if you were paying for a piece of furniture, for example) continue to put away the same amount each month. This will help you to boost your savings over a short time and can even go towards a specific purchase you have planned.
If you feel overwhelmed and can’t even think how to begin, seek help. Speak to a financial advisor and be prepared to be honest and to do the work to get to a healthy financial position. It may be painful at first but over time you will see the positive results.