If you don’t have a budget in place, there is no better time than now to get back to the basics with your budgeting and get your finances back on track! The New Year is here… and that means that your bills from Christmas shopping will start rolling in soon (unless, of course you read by article 10 Ways to Avoid Overspending This Christmas!).
So where do you even start? How do you know if you need help with your budgeting? Start here, with finding our if you are a budgeting phony.
Create a budget
The first thing that you need to do is have a clear understanding of the money that you have coming in each month and how much is going out for expenses each month. Make a spreadsheet or list of all of your monthly income sources and monthly bills, or expenses—or you can just download this budget to get started:
Limit credit card use
Only charge on your credit cards each month an amount that you are able to pay off. Don’t let the balance carry over month after month; most credit cards have high interest rates that compound daily. Paying only a minimum payment will take years (maybe even decades) to pay off. A great use of credit cards is using store cards for purchases at a specific store. For instance, I use my Target credit card every time I shop at Target because it saves me 5% off my entire purchase.
Use cash when possible
After creating a budget, it is easy to see how much money is left over each month that is considered expendable. Obviously, using cash, it is impossible to overspend. Once the cash that you have set aside for the month is gone, the spending stops.
Be an informed consumer
- Clip coupons—also look for stores that offer to double your coupons.
- Purchase items when they are on sale. Most stores have websites, which have weekly ads, and email sign-ups, which send out coupons, promotions, and savings events information.
- Comparison shop—the internet makes it easy to look up the price of an item at multiple stores or online shops to figure out where it is offered at the best price.
Save for the future
- Savings account—even though interest rates are low now, putting money into a savings account is still a good idea. If you set up direct deposit, that money will go there before you get your net paycheck; it is much easier to save when the money is taken out of your paycheck directly.
- Retirement account—if your employer offers a 401k or other similar retirement plan, you want to contribute to the maximum matching level. If you employer matches to 4%, that is the level to which you want to minimally contribute, otherwise, you are turning down “free” money.
- Emergency Fund—it is suggested that you have at least six-months salary set aside in case of a life emergency, such as accident or loss of job. These funds can help get you through if something were to unexpectedly happen; you will still be able to pay your monthly bills, even if there isn’t any current income coming in.
- Open a Return of Premium Life Insurance Policy—While this type of life insurance policy provides protection for a certain period of time, it also provides a sort of forced-savings account. If the benefit is never used, policy holder gets all of the premiums back.
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