Budgeting Tips to Increase Your Financial Awareness

Budgeting will allow you to plan how to spend your money, making it easier for you to have enough cash to cover all your essential monthly expenses.

Besides providing a spending plan for your income, a budget will also help you stay out to get out of debt. And if you’re already in debt, then it can help you get out of it.

Now that you understand the importance of a budget, let’s go over some tips on how to create an effective budget.

Identify Your Sources of Income 

How do you receive your income? It may be in a guaranteed or variable form. If you get a regular salary, then it’s a guaranteed income. If you work as a freelancer, then it’s a variable amount.

Identify Your Expenses 

What are your primary expenses? Consider your living expenses like food, clothing, and entertainment and household expenses such as electricity, water, and telephone. Also, consider any fees or subscriptions, any loan repayments, and any money you must set aside for taxes.

Also, you should put things in the budget that you can spend a little on now to save a lot later. Do you live in the Pacific Northwest? All that moisture can cause mold to grow throughout your house, you can pay a Portland-based inspector for periodical inspections now or for a major removal and remediation later. How about SoCal? Bugs can be a major issue so, getting pest control in Orange County, California can save you thousands of dollars down the road. The point being, spending a known amount up front for maintenance can help prevent a catastrophic financial event later on.

Separate Your Wants from Your Needs

It can sometimes be difficult to distinguish between a need and a want. A need is something you must have to live while a want is something that you desire but it’s not necessary to have. For instance, buying groceries is a need because you need to survive, but buying salty potato chips is a want because they are not a requirement for said survival.

Design Your Budget 

You can create a budget in a notebook, with an Excel spreadsheet, or use an app. Basically, you’ll be setting up a list of income and expenses and doing simple math to compare income to expenses.

Refine Your Budget

Once you’ve set up your budget, you’ll probably find that it takes a few months for you to get more accurate estimations of where you’re overspending. You’ll also discover ways of saving that you had not thought of before because you’re now more aware of how much money you have available each month and where it’s going.

Troubleshoot Your Budget

If you find that your budget doesn’t balance because your costs exceed your expenses, then you have two ways to make an adjustment: increase your income or reduce your expenses.

While most people try to improve their budget by cutting down on their expenses, this only has limited effectiveness. You don’t want to reach a point where you make yourself miserable by becoming a miser. At a certain point, your budget will not balance because the cost of living is too high.

Usually, the most effective step to troubleshoot a shortage of money is to increase your income because there isn’t much you can do to change the cost of living.

You can increase your income in one of three ways:

First, you can try and change jobs. It’s quite possible that another employer would be willing to pay you more. While you can’t expect much of a difference if you’re switching from one entry-level job to another, there is usually quite a bit of difference if you’re a professional person with plenty of education, knowledge, skills, and experience.

Second, you can improve your job performance. If others in your company are earning more than you, then it’s possible that the company will pay you more if you can improve the value of service you provide. One way to increase your value in your company is to take classes to learn new skills.

Third, you can change industries. You may be underearning through no fault of your own. You may be in an industry that is in decline. If this is the case, it may be more profitable for you to change industries then switch jobs or try to get a promotion at work.

In conclusion, budgeting is more than just organizing your money better. It also raises your awareness about financial issues. By understanding your relationship with money better, you might start buying different things or begin looking for new ways to increase your income.

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