5 Rules for a stress-free and effective home budgeting
Spending less than what we make is often concluded by industry experts as the best personal finance goal one could ever shoulder. This goal always helps us stay away of debt, build up an emergency fund, and nonetheless, stash away money for retirement. Experts say that this should not be seen as a goal, rather should be the very basic nature of any individual to attain some level of financial freedom.
Unfortunately, it’s very hard to accomplish. In a recent study by Federal Reserve Board, it was revealed only “53 percent of respondents indicate that they could cover a hypothetical emergency expense costing $400 without selling something or borrowing money.” While, in some cases, it’s not having decent income that creates the hole, in most case, however, the problem is overspending. Now for those who can’t control their spending, here are five tips for a stress-free and effective home budgeting.
1) Understand the goal: The goal of your budget should never be just tracking every single dime you spend. That’s undoubtedly one of the ways to budget – but should never be the goal. In fact, one might be having many lacking in his/her budget in spite of knowing where his/her money is going. The goal of a budget is knowing your income, your necessities and whims, and allocating funds for each of those necessities and whims. Also, the goal of a budget is to help us control overspending and focus on stuff that matter the most.
2) Use the 3-category budget: We already said that you needn’t track every penny you spend as it takes you nowhere. For instance, knowing how much you spend on gasoline a month is interesting. But if you go on overspending in this category, just tracking the expenditure makes no point. Or, does it? Most people overspend in just few categories – such as eating out, buying clothes, gadgets, and for entertainment. Make use of the data accumulated from your monthly spending, and pick the three budget categories you’d like to bring under control.
3) Track spending for a week: Though cannot be included in the goal of budgeting, tracking what you spend during a very short period of time can be an eye-opener. It’ll show how spending even small amounts add up over time and make your household budget a complete mess. It also reveals the areas you need to cut back on. Just by tracking for few weeks you can get valuable information about your spending pattern.
4) Save first: Remember that the goal of budgeting is to spend less than what we make. Alternatively, we can say that the goal of budgeting is to save money. One of the best ways to achieve this goal is by saving money at the beginning of every month, rather than what is left over at the end of the month. This strategy is a part of behavioral finance. Once money is gone from your account at the beginning of each month, you’re ought to spend less
5) Try the 50/20/30 plan: Coined by Senator Elizabeth Warren and first introduced in her book All Your Worth, this approach to budgeting is renowned for its simplicity. As per this strategy, 50% of your income goes to the necessities, 20% to long-term savings, and 30% to lifestyle choices. This plan should perform well for those who are newbies and struggling to find out how much they should spend on individual budget categories.