April 23, 2024

Budgeting 101: A Brief Guide to Saving Money

Keeping track of your monthly and annual income is an important practice that will help you establish a more conscious spending habit. Here are quick steps that will allow you to save money, build a financial safety net for emergencies, and meet your future goals.

1. Calculate your net income

Your net income is the amount of money you earn each month less taxes. If you are employed, your salary is your net income; if you freelance, you’ll have to count the monthly earnings and subtract the taxes. Some payments, like insurance health plans and various subscriptions, will be automatically withdrawn, so be sure to account for that.

2. Track your spending

Your monthly expenses include everything from necessities to entertainment and vacations. The list varies from person to person but generally includes groceries, utilities, various subscriptions, transportation expenses, and gym memberships. If you’re taking a personal or payday loan from companies like Payday Depot, paying off your mortgage, or taking out an auto loan, be sure to include it in the list of expenses.

After compiling the list, it’s time to group the expenses into primary (fixed) and secondary. For instance, your grocery bill, utilities, insurance, and loan repayments are your fixed expenses, while a Netflix subscription and gym membership are secondary.

3. Set goals for the future

It is time to group your priorities into two categories: short-term and long-term financial goals. Short-term goals should be achieved during the next couple of years, and you should deal with more pressing issues like repaying your debt or setting up an emergency fund. At the same time, set up a list of long-term goals that would include mortgage payments, a child’s college fund, or money for your retirement.

One of the budgeting techniques is the 50/30/20 rule, which helps monitor your spending. Group your income into three categories:

  • Needs (50%): groceries, utilities, and rent payment;
  • Wants (30%): entertainment, subscription, vacation;
  • Savings/Debt (20%): loan repayments and money for your long-term financial goals, like retirement, college, and emergency funds.

Keep in mind that some of your goals will change along the way, so there is no need to berate yourself when your priorities shift.

4. Review your budget and make adjustments

One of the most common tips is to make a new mini-budget every month. As your expenses will vary from month to month, it’s wise to keep track of your budget and make appropriate adjustments. Sometimes, you will exceed the monthly budget and have to tighten the belt on some of your wants and needs, while other months will allow you to save extra money that you can allocate appropriately to meet your short- or long-term goals.

Budgeting is not a panacea against money problems; it’s an established habit that will help you keep track of your money and live debt-free. By planning and setting down a sum monthly, you will be able to reach your short- and long-term financial goals, set emergency funds, save money for vacations and fun stuff, and achieve financial independence.

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