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Others may think having a budget stops you from buying the things you want, but that’s the total opposite. Having a Budget gets you the things you need, like a down payment on a home, emergency funds, getting out of debt, a new car and the list goes on and on.
Furthermore, a budget will give you financial freedom and stability, to pay off an existing loan and also not borrowing money from any loan sharks or payday lenders which put you deeper in debt because of their high interest rate.
Knowing how to start your budget
Identify what your income is, this will give you a more in depth knowledge of how much money is on your paycheck. In addition to that, this will give you a clear view on where and how to start your budget. Having a budget keeps your spending in check to assist with achieving your financial goals.
Why having a budget helps
An effective budget will give an individual the tools to track how they are doing financially, so they can plan for both short- and long-term expenses.
Budget puts you in charge of your money, moreover, a budget gives you an action plan and a clear picture of where your money is ending up each month.
Without a budget, you will experience overspending and going into debt. A budget will help you prepare for emergencies, like needing new brakes for your car, a broken water heater, taking off a day or 2 from work because you or your child is sick. So, having a budget will clearly help save for any rainy days.
Pay yourself first
What is paying yourself first? It is taking 10% minimum of your pay and putting it into your savings account first before spending on anything else including bills. Just remember paying yourself is key when it comes to budgeting and saving for one’s needs. For example, paying yourself first may include:
- Saying towards Roth IRA/401K
- Create an emergency fund
- Saving for a home or car
Paying yourself will assist you to prioritize your long-term financial well-being rather than focusing only on immediate needs.
Separate needs and wants
What is a need? Something that is very important or essential, like food, home, health care, and clothes. What is a want? It is a desire, a wish, for example, we need clothes to wear, but we don’t need brand name clothing or brand food. Clean and comfortable clothes will do.
Know your monthly expenses
Your monthly expenses are a major part of your budget. Everything from housing, light, gas, transportation to groceries and internet. Creating a budget can help you do a better job of managing your expenses.
Just keep in mind that every month will be different, for example, this month’s gas and light bill may or will be different from the following month.
Track your spending
Track how you’re spending your money. This will give you a detailed picture on where your money is going. Consequently, not knowing would put an impact on your budget and your path to financial freedom.
In addition to that, it will help you identify your spending patterns which will consist of both fixed expenses and variable expenses. This will give you a clear path on how to create and plan your budget.
Paying off debts while budgeting
Paying off debt is a major benefit of having a budget. As long as an individual follows their budget and does not spend on impulses, then they should be able to pay their debt off in a timely manner.
What if my income is too low to help pay off my debts? An answer to that is, ask for an increase in your pay/salary (don’t be afraid to try). Another way to help pay off your debt is to start a side hustle, like Uber, DoorDash, or virtual assistant if you prefer to do remote.
Financial stability
When you have a budget, you can get a big-picture view of your finances over time. You know what’s coming in and what’s going out, and that knowledge can help you create financial stability.
Put your budget plan into action
Don’t be afraid to start a budget, you are not restricting yourself from getting the things you need. It will pay off sooner than you think. The quicker you start the better things get for you to reach financial freedom.
Have a positive mindset
Think positive, be optimistic in what you are doing, this is a great way to achieve your goal. Stay focused on your main goal to be financially stable, and remember mistakes will happen, but it is learning from our mistakes to do better that counts.
