Tips to Live Within Your Means
Date: October 24, 2016
Budgets get a bad rap. Like diets, they seem designed to prevent you from indulging in life's pleasures, but if you find yourself constantly outspending your income and you fear that credit card debt is piling up, it's time to get comfortable with the idea of creating a budget.
The Benefits of Budgeting
Think of budgeting as a way to take control of your money. It's empowering to actually manage your finances instead of letting them run out. A good budget is flexible and user friendly, not rigid and punitive. It helps you organize your income so you have enough to pay all essential bills, indulge a little in extras and set money aside for your future plans.
Creating a Budget
Sitting down without any information to create a spending strategy is not practical. If you're thinking of budgeting, your first step should be figuring out where your money goes. Until you get an idea of your personal spending habits, any budget you make is no more than a wish list of what you'd like to do with your money. Use your smartphone to record each expenditure you make for a month. With this data in-hand, you can see where you are spending your dollars and create an plan for saving and spending that fits your life. Or simply use a budgeting software like Quicken.
Pay Priority Bills First
You won't get very far without a roof over your head and food on your table, so allocate an adequate part of your budget to these priority essentials. Food plus housing costs — whether you rent or own — shouldn't eat up more than half your income. Earmark another 20 percent for savings and your retirement strategy. The remaining 30 percent is yours to spend on entertainment, clothing and fun. Giving yourself the option to spend this chunk of income as you choose takes away the feeling of deprivation. If you'd rather buy a coat than eat out this month, it's your decision. But stick to the budget.
Track Your Budget
You might want to rethink your budget if you find yourself overspending month after month. It's a good idea to pay yourself first by direct depositing a portion of your paycheck into a savings account. For those whose credit and debit cards get the better of their budgets, another useful tip is to pay for all food, clothing and entertainment in cash. This way you see the money leave your wallet when you buy something. Personal finance software, such as Quicken, can also help you set a realistic budget and provide money management tips to help you successfully live within your means.