10 Budgetting Skills You Need to Know
Budgetting isn’t easy, especially if you’re trying to get your finances in order after you’ve gone through a period of financial difficulty (such as a divorce or illness). It can be tempting to give up entirely and just ignore your money issues. However, if you’re in trouble financially, you owe it to yourself to at least try to get out of debt and stay solvent in the future. If you have these 10 budgetting skills, you’ll be better equipped to tackle your financial problems than someone who doesn’t.
Develop a Budget
The first step in any budget is developing one. If you don’t know where your money goes, you can’t make a plan for how to reduce spending or make more money in order to save or invest. There are plenty of free tools online that will help you get started on creating a budget. It may seem like an overwhelming task at first, but it’s really not too difficult once you get started and see all of your financial information laid out in front of you. You may even be surprised by what types of expenses sneak up on you each month!
The fact is that most people aren’t capable of living within their means no matter how hard they try. There’s something about having cash in hand or a credit card that makes it difficult for us to keep track of what we spend. Keeping a budget might be part of your financial plan, but it’s likely not feasible unless you take some steps to make sure you don’t overspend. Realistic expectations are an important step in being able to live within your means.
Understand Why Money Matters
Some people are good at managing money and some aren’t. Whether you’re good or bad at budgeting, it’s essential that you understand why financial matters matter in your life. That way, when a situation comes up, you know what to do about it. If there are unexpected expenses or if some of your money has gone missing, for example, you will know how to handle it properly rather than floundering about making poor decisions that only make things worse down the road.
Before you can budget, you need to have goals—and most people don’t. That’s why they are always struggling with money. Figuring out where you want your life and your money to be in 1, 3, 5 or 10 years is a critical first step in budgeting effectively. When you know what you want, it’s easier to plan how much money you need and how to get there. The clearer your vision of success, the better able you will be to stay on track when things get tough.
Track Your Spending
It can be tough keeping tabs on where your money is going. If you feel like you’re spending more than you should, it’s a good idea to track your spending for a couple of months and figure out how much you’re paying for essentials, how much you’re putting toward entertainment and dining out, and whether any unnecessary costs are popping up. Once you know what your budget looks like, try to cut back in areas that aren’t essential—and don’t forget to reward yourself with something nice once in a while!
While there are many ways to keep a budget, one of the most effective ways is by prioritizing bills in your monthly budget. When your rent/mortgage is due at day 10 of your month, that should have a high priority in order for you to be able to pay it on time and not incur late fees. The same applies for any other bill. This will help you prioritize what needs to get paid first, second, third and so forth. This will help ensure that nothing slips through the cracks when it comes to paying your bills on time.
Pay Yourself First
Paying yourself first means automating your savings so you don’t even see it; with automatic transfers from your checking account into a separate savings account, you’ll never be tempted to spend it. This is called taking money out of your paycheck before you get it. It can take some time to set up, but once it’s in place you won’t have to think about saving—it will just happen automatically. If you can afford it, set up an additional transfer that goes directly into your retirement fund.
Always Have Emergency Funds
When you’re living on a budget, it can be tempting to avoid planning for emergencies. After all, there will always be something in your life that suddenly needs funding—especially if you have a family—but it’s critical that you treat every expense as an emergency and plan accordingly. Whether it’s health care or car maintenance, build into your monthly budget $500 or so that you can tap into when needed.
Setting aside some money for savings is one of the best things you can do for your financial well-being. If your employer offers a 401(k) or 403(b), enroll as soon as possible, as saving early gives you more time to take advantage of compound interest. The same goes for an IRA (individual retirement account). After that, make sure to have an emergency fund that’s fully stocked with enough cash to cover three months’ worth of expenses—including food and housing. This will give you peace of mind in case anything unexpected happens. When it comes to credit cards, pay off your balance in full every month so you don’t get hit with any interest charges. And if you want to start investing but don’t know where to begin, consider opening up a Roth IRA and choosing low-cost index funds as your investment vehicle; they’re simple yet effective at building wealth over time.
Don’t Overestimate What You Can Do
it’s easy to get ahead of yourself and want everything you can possibly imagine for your life. There’s no harm in dreaming, but when it comes down to budgeting skills, think realistically about how much you can actually do. If you’re just starting out in your career, work hard at climbing that ladder—and then decide what kind of lifestyle you want as a result. If you’ve already made it big, don’t forget where you came from: Remember those days when every dollar counted? Keep that mindset going forward and make sure your spending doesn’t get out of control. It may be easier said than done, but remember: if it was easy, everyone would be doing it!