Stick to your budget -- and rock your savings -- with these key moves.
Following a budget can benefit you in many ways. First, it can help you boost your savings by giving you a sense of where your money goes and helping to identify ways to cut back expenses. It can also help you reduce or avoid debt, thereby -- you guessed it -- leading to more savings.
But if you're a budgeting newbie, you may be wondering how to get started with your money management efforts. Here are a few tips that can make your budget more successful.
1. Use concrete numbers when setting up your budget
To set up your budget, you'll need to list your various spending categories to see how your total outlays compare to your earnings. But while you might think you know what each expense on your list costs you, you may be surprised at how far off your estimates really are.
A better bet? Comb through your bank and credit card statements from the past year to get an accurate sense of what you really spend. You might assume, for example, that groceries cost you $300 a month. But if you review your bills from the past year and find that that figure is actually closer to $400, sticking with that $300 will throw off your budget, rendering it far less effective.
2. Incorporate one-time expenses
Chances are, you have some expenses that only pop up once a year. For example, if you require a professional license for work, and it costs $300 to renew it annually, you might forget about that fee until it comes due, at which point you risk not having the money for it. That's why it's so important to factor one-time expenses into your budget. That way, you can put aside funds for those bills on a monthly basis and ensure that you have enough money in your savings to cover them as needed.
3. Make savings your most important category
In the course of setting up your budget, you're likely to include key expense categories like housing, transportation, food, and healthcare. But many people forget to include a line item for savings in their budgets, and as such, don't manage to boost their cash reserves on a regular basis. If you'd rather not fall into that trap, make savings the top line item on your budget, and work backwards from there.
For example, if your goal is to save $6,000 in the course of a year, you'll need to sock away $500 on a monthly basis. If you make your first expense category "savings" and subtract that $500 from the $3,000 you bring home each month, you'll know to limit your remaining expenses to $2,500. And if you're not left with enough money to cover them all, you'll need to cut back in discretionary areas, like leisure and entertainment.
You don't need to be a financial genius to maintain a solid budget. Even if you're new to the process, once you get in the habit of sticking to a budget, you're more likely to meet your savings goals. And the more solid that budget is to begin with, the greater your chances of success.
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