With interest rates rising daily and inflation at historically high levels, there has never been a better time to learn the ins and outs of budgeting and financial literacy. Expenses have gone up for everyone, so it more important to monitor your finances to help make the most out of the finite amount of income you get each month. We recently watched Netflix’s “Get Smart with Money” and highly recommend you watch it also. The documentary follows financial coaches who offer budgeting and financial tips, and it got us thinking that we can all use a little budgeting and financial advice right now.
The first step you should take to begin budgeting is to compare your monthly income and expenses. Use your last month’s bank statement to write down your income over the month in one column and list all your expenses in another. Financial experts recommend categorizing your bills into certain categories such as house bills, personal account, spending account, emergency savings, and dream savings. It helps to further differentiate your expenses based on which ones are fixed and which ones are variable.
By separating your expenses, you can focus on the group that your daily spending habits can directly affect the most. Analyze your expenses to see exactly how much you are spending on frivolous or unnecessary items to see which luxury items and services can be cut from your budget. Evaluate each expense to see if there is a possibility for a better alternative or price. Consider items like car insurance, cell phone bills, and cable. Make sure to pay your bills on time to avoid costly late fees and penalties.
It may be hard to commit to being financially frugal at first but remember that it’s more important to have financial stability than it is to have a new pair of brand-new shoes, the latest iPhone, or a Starbucks every day. Ask yourself before each purchase if you really need this item, and you will find that many items you are spending money on are unnecessary.
Food expenses make up a large portion of a family’s budget and is rapidly increasing. Things like eating out at restaurants or going out for drinks and entertainment can be an easy target for finding ways to save. By cooking at home, or by doing hobbies and interests that occupy your time and don’t have an expensive cost attached, you can likely save hundreds each month on your expenses.
Here are a few other ways to lower your monthly food costs. Cut down or eliminate brand name items that can be substituted for generic ones. In many cases with food and medicines especially, the generics are the exact same products with different labels and a cheaper price tag, so it is an easy change to make. Couponing can be an excellent way to get the same items at a fraction of the price. With a little planning, can you utilize multiple grocery stores for shopping and buy what is on sale at each store. You can also buy certain items that are non-perishable in bulk to save money on the average unit price.
Housing expenses have increased drastically. Consider downsizing your house or getting a roommate to lower your monthly housing expenses. With huge increase in utility bills this year, working daily to reduce your energy costs can make a significant difference in your monthly housing expenses. Read more about saving money on your utility costs here:
Transportation is another huge expense. Do you have a long commute? Try carpooling with a coworker. If your car payment exceeds your comfort level, look at trading it in for a more affordable car.
Once you have implemented these changes, you can take your savings each month or add that extra money into a savings account or investment vehicle so that your saved money now makes you money. By creating a savings, you can prepare yourself for larger purchases that you want but don’t need, or to have in case of an emergency or accident. As a good general rule, you can try to follow the 50/30/20 method to come up with a good idea of how to split up your income each month. This means you should spend 50% of your income on necessities, 30% on your wants, and then 20% of your income should go towards savings, investments, or paying off debts.
Finally, it is important to make sure that your budget is flexible and accounts for any life events or changes. It is good to know how your budget compares to an average month, but it is never smart to keep the same budget amount for every month, especially if you already know one month is going to be more costly than normal, like Christmas for example.
If you apply all these tips to your daily spending habits, you’ll find yourself stressing much less about your bills each month and focusing more on what you’ve been able to save. There are two many things we can’t control in life. However, by practicing good budgeting tactics, you can at least guarantee that you have control of your finances and that you’re ready to handle any of the curve balls that life can throw at you.
Budgeting and Financial Resources
Mr. Money Mustache has a plethora of money saving tips. https://www.mrmoneymustache.com/
Dave Ramsey has a free budget app we recommend! https://www.ramseysolutions.com/
The American Institute of CPA’s offers some great financial advice. https://www.360financialliteracy.org/