Budgeting can be a nerve-wracking process, but in the end, it’s one of the best things you can do for yourself and your pocketbook. It puts you in control of your money and helps you know exactly where your cash is going. Budgets that include goals based on both spending and savings plans can help you make sure your money is being spent wisely.
If you are finding it difficult to manage your finances when your income varies from month to month – this podcast looks a budgeting with an irregular income
How to Control Spending
Budgeting means managing your savings as well as what you are spending. However, the grind of saving can be frustrating. Sometimes, that frustration leads to overspending. The following tips will help you learn how to budget in a way that allows you to spend and save in a smart way:
- Do your own thing. It’s easy to be influenced by the way your friends and family spend their money. However, trying to keep up with the Joneses only drives you further into debt. Set priorities that fit your life and your interests. You’ll find it much easier to control spending if you have goals in mind that you are excited about.
- Don’t live outside of your means. Living paycheck to paycheck is stressful. If any little thing goes wrong — a flat tire, a leaking pipe — you are left without the resources to meet regular monthly bills. The solution is to develop a budget that leaves some, even small amounts, set aside for emergencies. Make sure the purchases you make are ones you have budgeted for and can afford.
- Use cash. If you’re like most people, you use your credit or debit cards everywhere. However, it’s much easier to overspend or make that impulse purchase when you are simply swiping a card. Research shows that paying with cash helps people to remain disciplined about their spending.
- Don’t shop without a plan. Impulse spending can sink the best of budgets. By planning your purchases ahead of time, you can avoid unnecessary debt, and save for the things you really want to buy.
Setting Savings Goals
Savings goals help you direct the money you are setting aside towards the things that matter the most to you. Your goals also give you something to look forward to. Exercising self-discipline to plan for and save for your future is hard, but the rewards are worth every sacrifice you make. Your savings plan should include:
- Emergency savings. Unexpected car or home repairs, illness, or a job loss are never welcome and always seem to come at the worst time. By setting aside funds for emergencies, you are prepared with the funds you need. You also avoid taking on more debt to cover those emergencies when they arise. Be sure to set aside something every month to cover future emergencies.
- Short-term goals. These are goals you’d like to reach in the next 12 months. Things, like paying off a credit card or buying new furniture, are a couple of examples of a short-term goal. Short term goals are important because they provide a tangible and near-term reward for your careful budgeting. They will help you stay motivated.
- Medium-term goals. These are goals that you can hope to achieve within 2 to 5 years. Things like special vacations, saving a down payment for a house, or renovating a current home are good examples of medium term goals.
- Save for long-term goals. Long term goals are things that will take more than 5 years to accomplish. Retirement and your children’s education are examples of long-term goals that you can begin preparing for now.
- Save for the fun things in life. While it’s smart to plan and budget for rent, utilities, food, and essentials, it’s also important to budget for fun items and activities. It is important to include some of these fun things among your short, medium and long-term goals. That will increase your incentive to save. Also, when people don’t set aside money for entertainment, vacations, and other things you enjoy, they are more likely to turn to credit cards to fund those things.
Your budget helps you keep track of spending, but it also helps you build up your savings. Setting savings goals that include long, medium, and short-term goals, a rainy day fund, and include some fun, should all be part of your financial plan for the future. You will experience less stress and more peace of mind as you work to reach your savings goals while monitoring your spending.