Getting good at budgeting is a critical life skill, but how many of us can truly say to ourselves that we know how to do it well? Probably less than 10%. The good news is that there are some budgeting strategies that will literally never fail you. If you can get this right, you can look after yourself, your family, and anybody else who relies on your finances being in good order. What should you be doing?
Figure Out How Much You’ve Spent In The Last Three Months
The first thing you want to do is have a look at how much you’re actually spending. Figuring out where your money is going and how much you’ve spent over the last three months is essential for you to understand how you’re doing in general and the amount of money that’s leaving your bank account.
The best way to do this is to use an app that will tell you, usually your banking app, how much money has been going out. If you can’t do that, gather up your statements and use a calculator to work out all of your expenses. Once you’ve done this, you can spot your blind spots and see where the money is going. For example, you might be spending more on online shopping than you want, or perhaps taxi rides. This practice of tallying all of your expenses is the best way to determine where your money is going and why you might not have as much of it as you want in your account.
Search Around For The Lowest Price
When it comes to things like insurance and utility bills, you’ll also want to search around for the lowest price. These are your essential outgoings, so if you can get a system to lower these without your constant effort, then you can cut down on your costs substantially.
Websites like YouSet make finding lower prices for things like essential insurance products easier. You don’t have to look at every company’s website. You can find the cheapest offer quickly.
You can also use other comparison sites for things like broadband bills or even subscription memberships to private communities.
Calculate Your Minimum Monthly Survival Income
After that, you’ll want to calculate your minimum monthly survival income. This tells you how much money you need coming in every month to continue your current life without having to do something drastic like downsize. The easiest way to do this is to add up all of your essential costs, including:
- groceries
- utilities
- insurance
- transportation
- debt payments
- housing
- child care
If you have other outgoing obligations, include those as well. Once you have this survival number, it gives you a clear target for how much money you need to make. Sometimes you’ll discover that your income doesn’t cover it, which is why you never seem to have any money at the end of the month. Other times you’ll find out that your income is okay, but you have a lot of debt and that’s taking up your disposable income. If your income changes every month, use your lowest typical income as a guardrail against spending too much.
Set Your Financial Goals
Budgeting isn’t just about being defensive; it’s also about going on the attack. The best way to do this is to set clear financial goals where you tell yourself what you’re going to be doing in terms of money over the next few years.
For example, you could have a short-term goal where you clear your credit card debt in six to twelve months, and then you could have a long-term goal of one to three years where you save up. Being clear about the quantity and the timing is critical for enabling you to take the action that you need to take to get to the financial goals that you want to achieve.
Start An Emergency Fund
Lastly, it’s a good idea to start an emergency fund. Sometimes things in life go wrong, and you need money, cash you can fall back on to dig yourself out of a hole. The most common examples are things like essential home repairs or when your car breaks down, but there are all sorts of situations where you might need an extra bit of cash.
For example, you might have to change jobs and move to a new city, which is expensive, even if the income in the new location is higher. You might also need to book an emergency flight somewhere because a relative is sick. Having this extra cash in a bank account somewhere reduces the risk of interrupting your momentum.
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