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Managing finances is the silent war that nobody talks about.
We struggle with our bills and try our best to grasp onto any lifeline we can — taking on multiple jobs or working overtime. And yet sometimes, it’s still not enough to make it through the month.
Saving money becomes a challenge that people put off, and paying off debt is simply another bill that we’ve resigned ourselves to for a long period of time. But it doesn’t always have to be this way! Getting out of the vicious cycle of living paycheck to paycheck is possible for anyone, and the key is to create an effective budget.
While it’s not an easy process, taking control of your finances is crucial. The Balance points out how it can help you stop overspending and reach financial goals, not to mention be prepared for emergency situations. If you start with a lot of patience, dedication, and discipline, you’re sure to reach success.
And on that note, we’ve outlined a step-by-step guide so you can get started on your own budget.
Outline your expenses
We know it’s hard to take a real look at all the expenses you have — but this is a necessary step, and you’ll find that it’s not that hard at all once you start. Make a list of all the fixed costs you have, such as rent or utilities, and all the variable costs such as entertainment or house maintenance.
How you define key variable costs is up to your discretion. For instance, some may define groceries as a variable, while others say it’s fixed. Regardless, listing these expenses can help you to begin managing money.
As was mentioned in our piece ‘What You Should Be Doing Right After Payday’, it’s important to “pay yourself first” when you secure income. By knowing your expenses in detail you can “pay yourself” what’s needed to cover the essentials and use any money left over for other purposes.
Trace the sources of your income
If you have multiple sources of income, list them all down just as you did your expenses. This way, you can see whether or not your expenses are more than your income — and if they are, then it’s time to take a step back and do some serious budget-cutting.
If you make more than you spend, then that’s perfect, and you simply have to allocate what money goes where so you can keep better track of things.
Set up a savings plan
Reaching your financial goals isn’t impossible if you have a savings plan. You simply need to decide how much you want to save each month and set it aside somewhere you can forget about it, such as a high-yield savings account.
Keep yourself disciplined. As long as you think of the bigger picture, you’ll avoid dipping into your savings and be that much closer to reaching your financial goals.
Anticipating changes is crucial to making the right financial decisions. This not only means looking at what could change in your personal life but also at how external factors can affect you.
Inflation, for instance, can affect the interest rates and your spending power. With this in mind, FXCM’s trade volatility tool is a fiscal planning tool that can help you foresee events that can affect your finances (and which is free to access).
Having this information can help you plan ahead and determine whether or not you should continue saving, or if you’re better off investing your money instead.
Bonus Tip: Use a budgeting tool
If you find it hard to keep track of where your money is going on a daily basis, download a budgeting tool on your phone! Apps like Personal Capital or Mint can help to keep you on track, largely by making it easy to summarize your budget and motivate yourself with constant reminders.
With the variety of apps out there, you’re sure to find a personal finance app that can fit well into your lifestyle.
Facing the real numbers while budgeting can get a little difficult, but if you’re committed to getting out of the painful cycle, you’ll definitely find that you can stay disciplined. One day, your future self will thank you for it!
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