We should all be budgeting our money, no matter what our financial goals. Time to get that brand new car? Down payment on your first house? What about just creating a savings cushion or paying down some credit card debt? As you start budgeting, we’ve laid out a few basic rules to get you on your way. You never know how much savings you can find by starting now.
1. Find out where you stand. It is best to discover where exactly you are financially. Begin by determining your total monthly income, including salary, investments, part-time work, etc. Then subtract all of the bills that you know reoccur every month (e.g., rent, car payments, insurance, utilities, phone bills). With the remaining amount, you can actuate a realistic amount to save each month. Don’t forget to consider other purchases you’ll need to account for, like groceries and gas.
2. Go direct. A great way to rack up savings is direct deposit. Remember the old saying, ‘you don’t spend what you don’t see?’ Exactly. Start with a set amount (i.e., five to ten percent of each check) to automatically deposit into a savings account and it will add up before you know it. Extra points if you invest in a mutual fund, a professionally managed basket of diversified holdings. These accrue more than a savings account over time, and prevent you from withdrawing funds early, as there are typically penalties that incur.
3. Break bad habits, not the bank. Take a look back at your monthly bank statements, receipts or all the times you dined out right after grocery shopping. Where can you cut back? Try to really make your spending trends “lean” and eliminate any extra spending. It can help by allowing one “fun-purchase” a month like a bigger gym bag, a new watch, or those must-have boots. This will help keep impulses in check and allow you to have fun along the way!
4. Cut the debt. It’s easy to let your credit card debt pile up. Do your homework and identify which of your credit cards has the highest interest rate. Pay off as much as possible each month on it and meanwhile, make minimum payments on any other cards. Once the first card is paid off, choose another one as priority, continuing to make minimum payments on the others, and so on.
5. Set goals! Both short AND long-term. Goals are huge. They can serve as inspiration when we get off track, and as a benchmark to measure progress. Try to set both a short-term and long-term goal immediately. This could be saving enough cash for a winter vacation and putting a down payment on a new home. The short-term will give you confidence with quick success and the house payment will keep you in it for the long haul.
There you have it! Establish these basic budgeting tips and don’t forget to check out https://www.summitcreditunion.com/blog-toolsfor more financial tips.