The first step in any plan to improve our financial future is to create a budget. Increasing your income should always be on the agenda, but that is not a quick process. Reducing the amount that you spend of your current income is the fastest way to increase your Net Worth.
Budgeting is something that we usually go into with the greatest of intentions, however, we usually do not stick to it. These budgets lack some fundamental concepts that make it hard for us to maintain. They tend to lack specificity or they are too Draconian.
The tips below will rectify these issues and help you create the last budget you will ever need.
Track Spending Accurately and in Real Time
Find a good app or system to track how much you are spending and what you are spending it on. You cannot begin to reduce your spending and set a budget until you know what you’re spending money on. I recommend Mint.com from Intuit. I’ve used it for a long time and it’s free.
Eliminate Wasteful Spending
After tracking and identifying where your highest spending is, decide how much you want to cut back. Make that your new level of spending for the following month. Make it a habit of checking your progress toward your budget limit frequently. If you have been an over-spender for a long time, you won’t realize how fast spending accumulates. Always being aware of your proximity to the budget wall will make you think twice before you swipe that card.
Have a Plan for Every Dollar
When the money you have been saving begins to pile up in your checking account, that can be a recipe for failure. That money needs to be put to work securing your future.
Your first step in strengthening your financial situation is to create an emergency fund. Until this is taken care of, that is where your budget savings should go. Secondly, the additional savings should go to pay down credit card debt, beginning with high interest debt.
Once these are taken care of, allocate the additional money according to your individual goals, as they may vary. The important step is to remove the excess money from your account where it is easy to spend.
Have a Budget Partner
Just like with dieting, having a partner in any challenge helps keep you motivated and accountable. Whether this partner is your S.O. or a best friend or a family member, the important part is making it a joint activity. Ideally this will be your typical shopping partner in crime so they’ll be there to wrestle the card out of your hand.
Ok, maybe that’s a little much.
It is important for us to budget and spend responsibly, but we are only human. There are going to be things that we want and it is ok to reward ourselves. You should set a reasonable reward budget and agree to a timeframe ahead of time and stick to it. Maybe you decide to reward yourself once a month or once a quarter. Choose a dollar amount and a frequency that will not derail your goals, but enjoy yourself.
Changing spending habits that have been instilled in you for years is going to be a difficult process. Most likely it was your parents who first formed your relationship with money.
Put these tips into action and be well on your way to #financialfreedom #financematters