The Basics of Budgeting
We all know the value of budgeting in reaching and maintaining your financial goals. However, budgeting does not come easy to most folks, and especially in these harsh economic times, it could be that much harder.
Whether you are facing financial losses due to the pandemic, or not, the key to effective budgeting is to not consider making a budget as an onerous chore, but as making small behavioral changes, that can become easy parts of your everyday life.
For effective budgeting, one of the first behaviors you want to change is reaching into your wallet for that credit card. Credit card debt is the easiest to accumulate, and the hardest to resolve. According to current numbers, the average United States household carries nearly $7000 in credit card debt.
Credit card debt also has some of the highest interest rates, with an average annualized interest rate of almost 18%. That means that, assuming you don’t accumulate more debt during the year, you will be paying about an additional $1225 per year on interest alone. Most of us will incur other debt on top of that such as mortgages, car payments, or student loans.
Those kinds of debts can be unavoidable, but credit card debt is the one you can, and must control. Budgeting is the foundation of financial freedom and the first step in building economic wealth, and it’s easier than you might think!
Budgeting starts with understanding your expenses vs your income. That takes 3 easy steps.
1. Evaluate weekly expenses – The first time you asses your expenses, even a rough estimate is ok. As you get into better budgeting habits, you will gain a more precise view of your spending. Expenses include food, entertainment, transportation, phone and utility bills, rent – basically anything that you spend money on regularly.
2. What is your total incomes – Income is your wages from any jobs, from investments, annuity payments, etc.
3. What’s the difference? – Now, add up all of your expenses and incomes. Is your income able to cover your expenses? If it doesn’t, you are spending too much!
Keeping a record of your budget will help you in forming responsible spending habits. This is the most important and effective way to improve your finances, and the earlier you start the better.
Teach your teens — particularly those who are working at their first jobs, or those going off to college — how to budget, and you will be building a foundation for a lifetime of financial success.
What are some budgeting tips you use to curb spending and avoid too much debt? Please reply using the comments below.