Budgeting is a smart way of avoiding the tendency of overspending, and living in debt which makes it impossible to save money. A basic budgeting plan involves knowing how much income you have, how much is the expenditure and how much will be left over. Every time you receive your paycheck, be it every 2 weeks or monthly, make sure you do not spend it before making the budget plan. Make a list of all the fixed bills that need to be paid every month such as rent, utilities, car payments, mortgage, food, gas, tuition, school supplies and health insurance. Anticipate the amount each of these expenses require and keep this amount aside. In addition, keep a separate reserve fund. This is about 10-20% of your expenses which should cover any expenses should an unexpected event occur. If the list of expenses leaves your paycheck amount in the red, you are living beyond your means. This is where budgeting helps you realize the areas you need to curtail your expenses.
First and foremost, eliminate unnecessary expenditures. Recycle and use: For instance, plastic bags for your groceries make good trash bags too. Invest in reusable items like rechargeable batteries, cloth towels instead of paper napkins and towels. Limit addictive habits like gambling, smoking and alcohol. Think before you make any purchase. Use a 24 hour rule, that is, wait 24 hours before making a purchase of a non critical item. Do not spend it as far as possible. Set aside about 10 – 30% of your paycheck into a savings account. This will help you to build your emergency fund. Also make a habit of investing this money wisely, which will enable your money grow. The remaining money can be allocated as your spending money, which can be used for luxuries or recreational activities like movies, eating out, gifts, clothes, etc. If you realize that you don’t have enough spending money, then you need to learn to cut down your expenses.
Here are several tips that could be very useful: Pay yourself first. You can do this by creating a separate account which is mainly for saving or investing. First, determine the fixed amount depending on what it is intended for like college funds for your child. Once you put this money in, do not withdraw anything from this account. The idea behind this is that if you don’t pay yourself this amount you will end up spending it! Make a balance sheet if possible. This will display the expenses and savings. If you have wealthy friends, keep a list of excuses ready explaining why you cannot go out every time they make a plan. You need to realize the distinction between what you need and what you want.