METHODOLOGY FOR BUDGETING AND SAVE MONEY

          METHODOLOGY FOR BUDGETING  AND SAVE MONEY

Budgeting and saving money don't come naturally to many people for obvious reasons. Spending money on non-essentials is so easy, even if you're committed to a well-laid spending plan.

Still, getting on track with a realistic budget and squirreling money away may not be as difficult as you think. Begin by taking the time to create a budget, which can help you reorganize your finances, prioritize spending, and manage debt, thus allowing you to make progress toward your long-term financial goals.

Make a Classic Budget:

Budgeting your money is the cornerstone of a sound financial plan, and seeing all the numbers in black and white can offer valuable perspective on where your money is going and where you could put it to better use.

A budget can help you spotted areas where you're spending more than you realize and can also be set up to allow for the occasional indulgence as well as unforeseen emergencies. You have lots of reasons to set aside a few hours to build a classic budget—especially when you can do it in four practically painless steps.

Collect into one place all your electronic or paper bills, receipts, pay stubs, bank statements, and any other record of income or expense for at least a month. Or keep track of monthly income and expenditures as they happen.

Create a budget worksheet, using a budget template from Google Sheets, an Excel spreadsheet, or paper and pen. List all your income after taxes—for example, employee and freelance income, investment income, and interest earned on any savings accounts. Then list all expenses—for example, rent or mortgage payments, credit card payments, installment loan payments, grocery receipts, and utility bills.

Add up each set of figures and subtract the expense total from the income total to get a general picture of your financial health. If your income total is larger than your expense total—congratulations—you just found more money for saving, investing and paying down your debt. If your expense total is larger than your income total, all is not lost, but you'll have to make some choices about where you spend some of your money going forward if you want to balance your budget.

Drill down into your expenses and further categorize them into fixed, variable, and discretionary expenses. Fixed expenses (such as your rent) remain the same from month to month and thus often constitute the basis of your budget. Variable expenses such as utility bills can typically be lowered with behavioral tweaks like turning off the lights as you leave a room, and discretionary expenses consist of wants rather than needs and provide the most opportunities for saving.

Adopt the 50-20-30 Approach:

You have alternatives if you don't want to make a classic budget. For example, you could consider structuring your plan according to the 50-20-30 rule. Under this approach to budgeting, you spend:

50% of your after-tax income on housing, food, and other necessities

20% on paying down debt or increasing savings

30% on whatever you want—discretionary spending

Although this plan is simple, some critics say that it allows too much discretionary spending and doesn't emphasize debt reduction or savings enough.

Use Apps:

Another alternative to a classic budget is a budget app that can be downloaded to your phone, tablet, or computer. You generally link your app of choice to your checking and credit card accounts, and the app tracks your spending and generates a monthly report by spending category.

Budget apps can often be set up to alert you when a payment is coming due when an account balance is getting too low, or if there's suspicious activity in your account. The cost of most apps ranges from zero to several dollars a month, although some offer free introductory periods so that you can try before you buy.

Put Your Budget to Work:

Once you figure out how much money you're spending and where you're in a better position, take the necessary steps to put your financial future front and center.

Reduce Spending:

Start by cutting spending on items you don't need. For example, do you need a $10 coffee every morning? Could you make do with a smaller, older car? Instead of an expensive vacation, would you be willing to try a stay-at-home vacation (staycation)?

These types of choices are very personal, so there's no right or wrong answer. But laying them out on the table can at least help you understand your priorities and some of the options you may not have realized you had for saving money.

Get a Handle on Your Debt:

One aspect that seems to come with adulthood is accumulating some form of debt. Credit cards, student loans, car loans, and mortgage payments are common types of debt. Credit cards and other forms of debt can be an essential part of your financial toolbox because they build a credit history. However, exercise care when using them. Understanding the difference between good debt and bad debt can go a long way toward making sure you use credit wisely and maintain a good credit history.

At the same time, you should always look for ways to make your debt less expensive while you're paying it off. Transferring your credit card balances to a card with a zero percent APR or refinancing your student loans, for example, could reduce the amount you pay in interest charges and accelerate your debt payoff plans.

To build wealth, you have to start somewhere. The ability to save money is essential, but the first step in saving is spending less than you earn. This point may seem obvious, but it's also frequently easier said than done. Fortunately, even if your budget doesn't allow much wiggle room, dozens of ways to save money are available.

Reduce Your Tax Burden:

Nobody likes paying taxes, but they're an important aspect of any financial plan. Even if you don't make much money, you might be surprised to learn how certain tax strategies and decisions can affect your finances.

Learning how to minimize the impact of taxes on your finances can ensure that more money is going into your pocket and moving you toward your financial goals. Tax planning includes claiming all the deductions and tax credits you're eligible for and maximizing contributions to tax-advantaged accounts, such as a Health Savings Account (HSA), as often as possible.

Set Up Automatic Savings:

One of the best and most convenient paths toward wealth accumulation is to sign up for automatic savings. Open a savings account and then link your checking account to it so that an affordable, fixed amount is automatically transferred into your savings account every month.

Shop Smart and Live Frugally:

Plan weekly menus and meal prepping around inexpensive, nutritious foods, and draw your shopping list directly from these menus. Try to avoid running to the store multiple times a week by designating one day a week as a shopping day. When that day rolls around, take your list to a local discount market and stick to the list.

Clip paper coupons to redeem at grocery stores, drugstores, restaurants, and more, or try using one of the many available coupon apps to take page flipping and scissors out of the equation.

Shop for clothes, furniture, and toys at garage sales, thrift stores, and vintage shops, but spring for new mattresses, upholstered furniture, swimsuits, underwear, bike helmets, shoes, and the like. Never buy these latter types of items used.

Attempt to spend money only when it's really necessary. For example, use your local library for books instead of cluttering up your space with expensive tomes that you'll probably only read once, if at all.

Spend Money to Save Money:

This advice may sound like an oxymoron, but many real-life examples can point the way to you saving some serious bucks. For instance, take your car in for scheduled maintenance, and don't skip your six-month dental cleaning and checkup. These preventive strategies may be painful to your pocket, but deferring maintenance—whether for yourself personally or on items you own—could lead to a lot more pain and expense down the road.

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