A balanced budget doesn’t come naturally to everyone; it’s often a hard-earned skill. A skill unlike finding the tangent line to a hyperbola, balancing a budget was never taught in your apps high school math class — it’s down to your own motivation to learn it. If you’ve waited this long to teach yourself the benefits of a household budget, you might not know where to start. But don’t worry — there’s help just around the corner. If you’re struggling to figure out how you can make a budget that works with your finances, here are five points that can help you bring order to your financial house.
- Track your expenses
The average person has more than just a checking account. They have at least one credit card, a mortgage, a car lease, student loans, and maybe even payday loans. When you have so many demands on your cash, it’s easy to lose track of where your money is going. Make sure you comb through all your financial accounts the next time you sit down to make a budget and track every transaction from each of these accounts from the past year. Then place these expenses into common categories, so you can have a complete understanding of how you’re spending your money. Overwhelmed already? Don’t worry — there are award-winning apps that make tracking expenses simple.
- Identify problem areas in your budget
Some categories will take up a larger portion of your yearly income than others. It’s normal for important things like rent (or mortgage payments), utilities, and groceries to cost a lot. Frivolous thingslike entertainment, takeout, or toiletries, on the other hand, shouldn’t take up so much of your finances. Go through the categories you made in step one and separate them into necessary and unnecessary expenses. If categories you’ve deemed unnecessary are rivaling your budget for rent, you’ve identified a problem area.
- Have a backup plan
Problem areas lead to overspending that can limit your financial stability. When you spend all your extra cash on new clothes, you won’t always have enough money set aside in an emergency fund. Unfortunately, emergencies won’t wait politely until you have enough in savings. They can strike at any time. Once you’ve realized you’re unprepared for financial emergencies, you need to figure out how you can cover these until you’ve balanced your budget. An installment loan from an online direct lender like MoneyKey is a great stopgap until you’ve created a nest egg of your own. These lenders have eliminated many of the barriers that may slow down conventional sources, making their quick online installment loans some of the most simple and convenient backup plans for unbalanced budgets.
- Eliminate bad habits
It’s easy to realize you need to stop ordering Dominos when your pizza budget is over $200 every month. But sometimes your problem areas aren’t that obvious.You need to spend extra care to look through your spending habits to see if you can find hidden bad habits. They may be something like spending money on basic cable and Amazon Prime Video when you already have a Netflix subscription. Sometimes it’s not a single purchase but the collective sum of several categories that pushes you over the edge. Take some time to go through your expenses and see which unnecessary purchases you’re willing to part with to save some extra money.
- Set realistic limits
While you may feel it’s necessary to cut out every unnecessary expense to save most of your paycheck, this isn’t always a realistic way to increase your savings. It might work for a week. It might work for a month. But it’s only a matter of time before you lose your determination to stick with these strict limits. Eventually, you’ll end up overspending, and you’ll feel discouraged when you do. Give yourself the courtesy of starting slow. Instead of eliminating pizza completely from your budget, make it so that you only order it on Friday nights. Once you get used to eating homemade meals, further restrict your pizza to special occasions.
Making a budget still might not be easy, especially if this is the first time you’ve made one. But it’s easier than your high school calculus class when you use these five points to simplify a complex process. Make sure you start on the right foot and see where you can eliminate spending to create more savings.