Budgeting might not sound fun, but it’s an essential part of life. That’s especially true now, as soaring costs leave many consumers unsure they can make it to the end of the month. Having a budget can help you know where your money is going. That, in turn, will enable you to make good financial decisions so you can live with less stress in these volatile times.
Not that creating a budget is always easy. Some people make the mistake of being too restrictive with their budget, while others aren’t restrictive enough. Your budget needs to enable you to pay your bills on time and save money. But it’s also important you stick with your budget, so you want it to be realistic.
This article shares a few tips to help you achieve budgeting mastery. From using the most effective tools to readjusting your budget each month, here’s how to budget effectively:
1. Use the Right Tools
One of the best ways to set yourself up for success is to ensure you’re using the right tools. For instance, not every debit card is the same. Depending on whom you bank with, you might be charged unnecessary fees, like monthly maintenance or maintenance fees. When trying to budget, the last thing you should have to worry about is your debit card working against you.
Take some time to review your bank statements. If you notice you’re being charged hidden fees, consider making a change. Luckily, there are banks out there that set you up for success by minimizing their fees. Do your research and don’t be afraid to ask questions. After all, it’s your money, and you deserve to be in control of where it’s going.
2. Pay Down Debt
Do you have debt? If so, you’re not alone. According to a 2021 Experian study, the average U.S. adult has more than $96,000 in consumer debt. While some of that figure is doubtless attributable to mortgages, it still points to debt repayment as a priority for most consumers. If that’s the case for you, create a plan that will let you realize your goal of getting out of debt.
Thankfully, several methods exist to help you pay down debt. One is called the debt snowball method. With this approach, you pay off your debts in order from smallest to largest, regardless of the interest rates. You might be thinking, “Shouldn’t I pay off my debt with the highest interest rate first?” You could, but that may take more time, and slow progress might cause you to give up altogether.
What’s nice about the debt snowball method is that paying off your smallest bills first creates momentum to tackle the larger ones. Unlike other methods, you’ll actually see your debt chip away. Keep in mind, there are several other approaches to paying down debt. If the debt snowball method doesn’t appeal to you, find one that does.
3. Consider a Budgeting App
It’s no secret that creating a budget takes time and persistence. You first have to start with a good understanding of your income and expenses. Then you need to create a plan that lets you pay bills and save money at the same time. It’s not easy, but thankfully, it’s not something you have to do by yourself. Thanks to technology, there are apps that can develop a budget for you as well as monitor your progress.
Before using a budgeting app, make sure to do your research. With so many apps available, you want to make sure you’re using the right one for your specific financial goals. For instance, maybe you don’t need help creating a budget, but you do need help sticking to it. Look for budgeting apps that put more emphasis on teaching users healthy spending habits.
Since you’ll be linking your debit card to the app you choose, make sure it’s credible. Look into the company, learn how long the app has existed, and read the reviews. You also want to pay attention to fees. Some budgeting apps are free, while others involve a monthly or yearly charge. This doesn’t necessarily mean you should avoid apps that cost money — just make sure you’re aware of how that’ll impact your budget.
4. Readjust Your Budget
Needs and priorities shift, and so will your budget. Maybe you’ll have a baby or get a promotion at work. These changes will clearly impact your budget. Because of that, make sure you’re regularly reviewing your budget and adjusting when necessary.
As a rule of thumb, review your budget before the start of every month. Make sure you take into consideration how the previous month went. For instance, maybe last month’s budget was too rigid, and you weren’t able to do anything fun. Many people make the mistake of being too restrictive with their budget. While you don’t want to overspend on frivolous things, it’s important you’re still able to have fun and enjoy your life.
If you’re unhappy with your budget, there’s a good chance you won’t stick with it long-term. So make sure you have the wiggle room needed to see a movie with friends or buy a new pair of pants. On the other hand, maybe the previous month went swimmingly, and your budget was easy to follow. If that’s the case, you can leave it as is.
According to research, only 30% of United States households prepare a monthly budget. With today’s high inflation hitting consumers’ pocketbooks, that percentage should be higher. Having a budget isn’t a nice-to-have but a necessity. Luckily, the tips above will help you create a budget that’s beneficial and realistic.
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