No matter your income level, it's a good idea to have a budget and to stick to it. This technique will allow you to make sure that you have enough money for the essentials in life, and to help you be financially prepared for tomorrow.
Of course the challenge is determining what belongs in the category of needs and what belongs in the category of wants. And even within needs, you still have things that you might be able to do without.
Drawing that line in an aggressive place can free up money for other things, but it can also neglect things that you really should be spending money on.
As you work on making a determination about which things can stay in your budget and which things should go, think about some of these broad categories as a guideline for assessing them.
It is often said that you can pay now or pay later, and budgeting decisions should certainly take this into account. If things have gotten tight in your checkbook, it can be tempting to ditch things like insurance and home maintenance.
Don't give in to this idea. Moxie Services personnel doing pest control in Nashville can tell you how much easier it is to prevent pest infestations than to remove them. Once termites and cockroaches take control, it is far more expensive to remove them and repair their damage.
The same goes for changing your car's oil. It may drive great for months, but when it catches up to you, the repair bills can easily reach the thousands. And don't be without life insurance. Your income is vital to your family, and if the unthinkable happens, they'll need help.
One of the first red flags that you may be in money trouble is when you carry credit card balances. The outlook is even worse when you can only make minimum payments.
Credit cards should be looked at as debt, not money, because that's what they are. The interest rates are always higher because, unlike car loans or mortgages, they are unsecured debt. As a result, the less you pay now, the more you pay later.
Work on building a budget that goes beyond minimum payments. The CARD Act of 2009 requires credit card statements to provide account holders with a comparison between what they will end up paying if they only make minimum payments and what they will end up paying if they pay at a pace that covers the full balance in three years. Protections like this helped fast-track the bill's implementation.
Take advantage of any opportunity to reduce debt and you'll find your future budgets will be much easier.
Building An Emergency Fund
It may seem backwards to worry about saving money when you are barely making it through the month, but it is worth it. Establishing an emergency fund of as little as $2,000 can keep you from adding credit card debt or having to use expensive payday loans to take care of unexpected bills like car repairs.
It won't happen overnight, but with the discipline that comes with a good budget, you will find it happens faster than you expected. And if your budget just isn't working, try to troubleshoot it and reach a point where you can build up that contingency fund.
There are lots of ways to go about this. You can have the monthly contribution withheld from your paycheck and deposited directly into a savings account. You can even disguise it in your checkbook by rounding your transactions up to the nearest dollar (or even $5). Entering $15 instead of $12.87 will quickly build up some “ghost money” that will reveal itself with a careful bank statement reconciliation. Both methods are painless and almost unnoticeable.
Budgeting is tricky. Everyone has different priorities, but no matter your personal preferences, you should always keep the important things in your budget. They'll save you money down the road, which is exactly what a budget should do.