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New to budgeting? Start with three simple steps
About 58% of people say they feel comfortable creating a personal budget. We want to help this number reach 100%! Anyone can benefit from using a budget, regardless of your financial situation. Using a monthly budget will help you jumpstart your savings, pay off debt faster, and move toward your financial goals. Ready to make your budget? Follow these three steps to get started:
Step 1: Determine income and expenses.
The first step in any budget is to assess income against expenses. It’s time to examine your spending habits with a fine tooth comb. What are your essential expenses that come back and are to be expected each month? Think about rent, utilities, groceries, insurance, and loan or other debt repayments. Now assess your discretionary spending. Are there areas where you could reduce or eliminate an expense? Some things that often go unnoticed are subscription services, subscriptions that we don’t use as often as we think, frequent dining out, and other forms of entertainment. Another devious cost that can add up? Late fees on missed payments. By planning budgeted expenses on your calendar in advance, your budget can help you manage the flow of money to minimize or even eliminate late fees.
Once you have calculated the inputs and outputs, you will have an idea of ââhow you are operating now. Then you can decide if adjustments to your spending habits are necessary to meet your individual financial goals.
Step 2: Choose a budget plan.
Armed with information about your financial habits, you can create a budget plan that’s right for you. Here are the two most common budgeting methods:
- Zero-based budget: Also known as the envelope method or zero-sum budget, this strategy is simple: Give every dollar a job. You designate all income for specific expense categories – rent, utilities, groceries, insurance, health care, debt repayment, entertainment, etc. – making sure that your income minus expenses is zero at the end of the month. This method can help you resist the temptation to overspend, since each amount is pre-planned, and allows you to clearly visualize your spending. It’s also one of the best ways to quickly pay off debt and achieve savings goals. However, this strategy may seem a bit too restrictive for free spirits who still want some flexibility and may not work for all lifestyles.
- 50/30/20 package: With this classic strategy, you split your income into larger batches, allowing a bit more flexibility on the details throughout the month: 50% for the most part, 30% for discretionary needs, and 20% for the savings and debts. This plan can be a great option to get you into the savings mindset without being overwhelming, since you can still spend a third on the fun things in life. For an extra boost in tackling debt faster, you can swap the âwantsâ categories with âsavings and debt,â spending only 20% on wants and instead devoting that extra 10% to paying down debt. debt.
There are also several other budgeting strategies. We’re happy with whichever method you choose if it allows you to budget that fits your life and financial goals. The most important thing is to stick to the budget and adjust it as needed to fit your life.
Step 3: Put the economy on autopilot.
One of the best things you can do for your current and future self is to automate your savings. The easiest way is to take a fixed percentage from each paycheck, so you don’t miss it. Well, maybe you will miss it a bit at first, but since you’ve planned to save in your budget, it will get easier over time. You’ll want to start saving as early as possible so that the money can have time to potentially grow, as time is your greatest ally when it comes to saving a nest egg.
Why should you budget?
If you’re struggling to stay on a budget, don’t be discouraged. The transition from free spending to budgeting takes some getting used to, but we encourage you to think it will be worth it. Staying on budget will help you reach your financial goals faster and feel more confident in your purchasing decisions.
Need a little help tracking your spending? Try a budget tracker where you can create custom budgets for each of your accounts and see where your money is going, whether you’re spending it on food, gas, or birthday purchases.
For more information visit Financial growth to find out how to save and how to become a member today!