Budgeting money isn’t easy for most people, no matter what their age. When it seems like there is always too much month left at the end of your money, it’s time to make a commitment to changing your financial priorities. The good news is that you can start today, regardless of how little cash or how much debt you currently have.
Just as losing weight boils dawn to consuming fewer calories than you burn, creating a budget and getting out of debt is also a simple concept. You must spend less money than you take in every month.
However, the type of budget you initially create depends on whether you are truly broke or just looking to manage your money better. The 50/30/20 Method If you’re not struggling to make ends meet but could still use some budgeting help, the 50/30/20 method may be appropriate for you. This consists of the following:
5o percent of your net pay goes towards fixed expenses like rent or mortgage, utilities, car insurance, or a car payment. These bills don’t vary much from one month to the next. If you’re trying to cut back on expenses, it’s usually easiest to do so from this category. For example, could you give up a gym membership or another prepaid monthly subscription until your financial situation Improves?
Flexible spending should make up approximately 3o percent of your budget. This accounts for expenses such as fuel, groceries, dining out, entertainment, vacations, and occasional medical expenses Groceries fall into this category because the amount can vary depending on whether you have coupons or are entertaining extra people one week.
Finally, plan to set aside approximately 20 percent of your budget towards your long-term financial goals. These may include contributing to a 4c1K or Individual Retirement Account (IRA), building up an emergencyfund, and paying off debt like student loans and credit cards. Financial experts agree that all of these things are essential to secure a better financial future.
Budgeting — When You’re Deeply In Debt
If you owe several thousand dollars In credit card or other unsecured debt, you should switch your focus to paying it off first. This may mean that you need to forgo wing for retirement and other goals until your debt load is more manageable. To reach this goal, choose one of the following methods
Debt Avalanche: To employ this method, prioritize your debts according to which one has the highest interest rate. By focusing on paying that debt first, you can potentially save thousands of dollars in the time it takes to pay off your debt.
Debt Snowball: With this method, you pay off your smallest debt first and then move on to the next one. Most people saythis gives them a sense of accomplishment and the momentum to keep going.
How to Cut Expenses While You’re Reducing Debt
To use either the debt avalanche or the debt snowball method, It’s often necessary to cut expenses Increase Income, or both. The first step is to find out where your money really goes. Before committing to a budget, track every penny you spend for one month. This gives you the opportunity to identify problem areas and make a plan for cutting costs wherever possible.
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