Are you always broke? Or living from paycheck to paycheck? If your answer to any of these two questions is yes, then you are spending more than what you are earning.
To get out from this financial rut, you need to learn how to budget your hard-earned money effectively. Budgeting basically means planning how to spend your money with a purpose. It will help you get out from debt, save for your future, achieve your goals, and have financial freedom.
Here are 5 tips that can help you:
1. Before the next month begins, budget your money to zero
Create a monthly spending plan and give each dollar a name. Your plan should include basic expenditures, savings, and other miscellaneous expenses.
2. Each month is different, be sure to prepare for seasonal expenses
There are months that require you to stretch the budget. It is best to prepare for them by setting aside a specific fund for these expenses: School opening fees, vacation, birthday, holidays and car maintenance. By having a plan, you prevent being stressed when the time comes.
3. Create a schedule, stick to it
When budgeting, schedule specific dates to pay your expenses. Purchase your groceries twice a month or weekly. For regular bills, set-up auto drafts in your checking account.
4. Give priority to essential expenses first, savings and your basic needs
Pay yourself first. Your foremost expense is your monthly regular savings, followed by the basic needs like shelter, food, utilities, transportation, and clothing. Then, fill up the rest of the categories.
5. Create a buffer in the budget, for unexpected expenses
Add a miscellaneous category in your monthly budget and assign a small amount of cash on it. Use it for an unexpected expense that may come up within the month. It prevents you from utilizing the money that you set aside for other categories. Keep track of this extra expenditure and if it happens frequently, add a category solely for its purpose.
Give yourself at least three months to become familiar with your budgeting system. Once it becomes an auto-habit, you will enjoy the benefits of living with financial freedom.