The thought of having to stick to a spending plan might make you cringe. It sounds restrictive and boring. But if you are serious about living debt free and creating wealth, a spending plan can actually give you freedom. You will have control over your finances, know where your money is going and have a plan to reach your financial goals. Not spending on a few things that you can do without right now means you will be able to spend on larger, more important purchases in the future.
To get started, find out how much you earn. The way you're paid can determine how you budget your money each month. If you're paid on a weekly basis, you can calculate your budget based on four pays a month. That means you'll have four extra pays throughout the year to help with extra expenses. If you're paid bi-weekly, you can calculate your budget based on two pays a month, and have two extra pays throughout the year. If you're paid monthly, calculate your budget based on the monthly amount. You won't have extra pays throughout the year, so you'll need to be careful in budgeting for the extras. For those who aren't paid regularly, figure out your annual income and divide it by 12 to determine your monthly income.
Then track your expenses. Your fixed expenses will be easy to figure out. These are the items that stay the same from month to month, such as your mortgage, car payment, and the like. Your other expenses can be trickier to calculate. To find out how much you really spend in a month, carry a notebook with you and write down everything you spend for the next 30 days. This will tell you how much money you're spending, and where it is all going.
When you've done that, figure out the difference. Now, find out the difference between what you spend and what you earn each month. If you have a surplus, a portion of that should be budgeted for emergencies and/or savings. If you have a shortage, you have one of two choices to solve your budget woes: lower your expenses or increase your income. You may even want to do both.
Lowering your expenses is the most obvious way to solve a discrepancy between your income and your spending. Simple changes made over time, such as renting a video instead of going to the movies, can add up to big dollars in your bank account. Others may be lifestyle changes, such as giving up one car and taking public transport instead.
Taking control of your finances by setting up a household spending plan is an important first step to living debt free. As you begin to make wise decisions about where your money goes, over time you will find opportunities to spend less and have more money to save.
I love seeing the savings add up.
ReplyDeleteAlways wanted to do the budget thing but I'm terrible with writing everything on paper. However a friend suggested a budgetting app and it's the best ever, like a virtual envelope system. We have now paid out the car loan and an interest free loan I had and now paying off extra on the mortgage, trying to put at least double the required repayment on it do we are seeing the principal paid off quicker as we pay less interest.
We also set aside a small amount each week for investments and as it accumulates that goes into shares or a managed fund.
And paid for our next holiday in cash!
We are double income no kids ATM, not necessarily by choice but choosing to see the positives and make the most of this season, enjoying some of the extra money but making sure we put the majority aside! Goal is to pay off the mortgage ASAP and live debt free