Corrupt economists continue to peddle the idea that we should constantly be spending money to stimulate the economy. But look at where all that spending has gotten us. Most families are barely scraping by on incomes that are lower than they were eighteen years ago. It’s a disaster, and life is tough.
Never before has it been more important that we budget to keep ourselves financially viable. Recently the Federal Reserve published a study on people’s financial security. It found that 53 percent of people couldn’t make a £300 expense without borrowing money or selling something.
So what can hard-pressed people do to budget better for the future and achieve financial freedom? Let’s find out.
Use Elizabeth Warren’s 50/20/30 Plan
Elizabeth Warren is a US senator and author. She wrote a very influential book called All Your Worth. In it, she describes her plan for how families should budget. She says that 50 percent should go on necessities, 20 percent should go into savings, and 30 percent should be spent on lifestyle. Her ideas are a good place for people to start who are struggling to work out how much they should spend on different categories.
Find A Great Budgeting Tool
Thanks to the internet, there are myriad tools for planning a household budget. Interestingly, there is no single best budget planner. There are instead a range of different options with various strengths and weaknesses. There are also tools, like cashfloat.co.uk that can help you to price in the cost of loans.
One of the cool things about a lot of these tools is that they can sync with your bank account. All your transactions are automatically loaded into your budget planner, allowing you to break down your spend. Where are you spending most of your money? Are there any opportunities to save money?
There are also options to download transactions onto your smartphone or tablet through apps. If your financial situation is really complicated, some apps allow you to do in-depth analysis and statistics.
Plot Out A Goal
The people who successfully budget aren’t anoraks who spend time counting every dime they spend. It’s the people who have an overarching goal for their money: something higher and greater than themselves. In fact, having a long term goal is a common trait of people who are filthy rich. They know what they want to achieve with their money and they go for it.
Having a goal helps you control your spending. It gives you a reason not to fork out on that coffee in the morning or buy that gadget you don’t need. Suddenly, there’s a purpose behind your money that motivates you to succeed and get even more of it.
Budgeting, therefore, should be all about your goals. Your if your budget doesn’t help you get closer to your goals, you’re doing something wrong.
Don’t Bother Tracking All Your Expenses, Just The Ones Where You Overspend
It’s rare that people deliberately splash out on their electricity bills or their phone bills. No, people like to overspend on the real luxuries in life. There are three main categories where people tend to overspend. These include meals out, electronics and clothes.
As a result, your budget should keep close track of these three categories. This type of budget is often called the “3-category budget” according to www.forbes.com. The idea is to avoid overwhelming people by focusing on all spending and just try to drive down three areas of problem spending. The cool thing about the 3-category budget is that it is a lot easier than any other kind of budget to implement.
Monitor Your Spending By Paying By Credit
People who struggle to control their spending are often advised to avoid credit cards. But is this good advice? First off, credit cards are really easy to obtain, even if you’ve had problems with debt or your credit score in the past. And second, debit cards can be just as costly, if used to excess. Overdraft charges can be as much as £40 a month.
There are some benefits to using credit cards too. For starters, using a credit card allows you to track your spending from month to month. Each month you’ll get a bill that’ll need paying. You’ll be able to track this bill from month to month to see if you’re spending more or less on your plastic. This way you can get a good sense of how much of your discretionary income is going to credit card payments.
Credit cards often come with a bunch of rewards too that sweeten the deal. More rewards on plastic means a better budget for you and your family.
Take Advantage Of “Behavioural Finance”
The only way that we end up with more wealth than we started with is if we save. But, given today’s economy, saving is tough. The truth, however, is that we need to be able to save if we’re ever going to build investments and achieve financial freedom.
Saving is an essential part of budgeting. But it is also hard to do because it means putting off the stuff you want to buy into the future. Researchers have spent a lot of time investigating the behaviours that make it more likely that a person will save. One of those behaviours is to get savings automatically deducted from your paycheck. By getting your savings taken out of your paycheck automatically, you’re less likely to blow the rest of your money over the remainder of the month. Making saving your first priority every month forces you to do it rather than leaving it to the end.
Trial Budgeting For A Week
If you force yourself to keep track of your budget, day in, day out for months on end, you’ll run out of steam and burn out. That’s why it’s a good idea to keep track of your spending for a week or two every quarter. If you’ve not done this before, it’ll be a learning experience. You’ll suddenly realise just how much money you’re wasting and learn what to do to improve your spending patterns.