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How To Budget Money
Budgeting is relatively easy to do, so it is surprising to see how many people don’t have a household budget, and just wing it when it comes to their finances. It’s no surprise that so few people have enough money in the bank to cover unexpected expenses when they occur.
The crazy thing is, it doesn’t matter how much money you make; if you don’t budget your money effectively, you will run out of money. There are many people making six figures that end the year with little to no money saved up, and even more, people who are wealthy – at least on paper – who are unable to pay their bills, or even bankrupt.
The key to avoiding these fates and making the most of your financial resources is to be able to manage whatever money that you make; to do so, you must create a budget that enables you to both cover your expenses and save and invest the money that you earn.
Here is what you need to know about budgeting your money.
The Magic Formula: Putting Your Money to Work.
You almost certainly work hard for your money. Does your money work hard for you?
Each dollar that you earn should be given a job. These jobs can be to pay bills, invest more money or accumulate in a savings account to use in emergencies. This is something that can bring you some significant financial benefits as you grow your savings and investments. Your household budget is where you put those dollars to work.
The main thing that goes into creating and sticking to a budget is making sure that you discipline yourself to be able to stick to the plan that you set out. Sticking to a budget is the “magic formula” that so many people are searching for. If you stick to a budget properly then you are ultimately going to put yourself in a better financial situation than most people are in. It really just comes down to discipline and consistency.
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Understand The Process
The first step of creating a budget for yourself is to understand exactly where you currently stand in your financial life. This means that you are going to need to calculate how much income you are bringing in after taxes. From there you need to take inventory of your monthly expenses. This means that you should write down how much you are spending on housing, transportation, insurance, food, and any other expenses you may have.
Once you have your expenses listed out, you will see an overall monthly cash outflow that you have to account for month after month. For example, let’s say that your overall monthly expenses are $3,500. Once you have this fully understood, you can see the difference between your monthly income post-tax and the amount of money you need for your monthly expenses.
That difference is what you can dedicate to your savings and investments. So, if you have an income of $5,000 per month with an overall monthly expense of $3,500 then you have about $1,500 that you can put towards building up your savings and investments.
Your budget must cover all of your needs and it is always good to make sure that you can afford some of your wants, but don’t take that too far. Spending too much money on discretionary items will ultimately sabotage your financial life. While you should enjoy your life and reap the rewards of your labors, you should also be able to discipline yourself so that you are able to continue working towards your long-term goals.
It is also important to note that your budget is dynamic and will change with time. Every once in a while, you are going to have to revisit your monthly expenses, income, and budget because life happens, and your budget will have to reflect all of that. So, don’t plan on just making a single budget and then filing it away forever.
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Make The Plan Simple
Once you have your current financial situation figured out, it is time to actually create the budget plan. The idea behind this is to make your budget as simple as possible. This will enable you to actually stick to it. Many people get nervous about budgeting because they believe it to be a complicated endeavor. It certainly does not need to be that way. Instead, you can create a simple budget that you just follow whenever you receive a paycheck and sit down to pay all of your bills.
Many people who budget their money effectively follow a simple 50/30/20 rule. This means that when you receive a paycheck you spend 50% of it on your necessities like housing, transportation, and food. Then you take 30% of the paycheck and put that towards your wants. This means any products you want or spending a night out. The final 20% of your paycheck after taxes with this program would be put towards your savings and investments.
This is a general budget plan that many people have found works really well for them. You can tweak the numbers a bit in order to fit your needs better. For instance, maybe your monthly expenses are lower in a given month, and you don’t need to devote 50% of your paychecks to your necessities. This means that you would be able to increase the percentage of either your wants or your savings.
Ideally, if you want to maximize the amount that you have in savings and investments then you would want to increase the amount that you put in so it is higher than 20%. You can get into some low-cost index funds and let them grow your money over time.
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Apps For Budgeting
There are some apps that can help you out with your journey towards a better financial life. In most cases, they will connect with your financial accounts so that they can track your income and spending habits. That is the basic way that these apps work but there are also some that offer more features to help you get towards your goals in a faster manner.
If you are interested in getting one of these apps to work towards your financial goals, below are some of the most popular apps for budgeting.
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PocketGuard is a free budget app that connects with your checking, credit, and savings account. One thing that people love about this app is the fact that it is able to detect any recurring bills or subscriptions that you pay. When you put in your budget plan it will tell you how much money you have for spending.
With this app, you can even categorize your expenses so that you are able to visualize exactly how much money is going to different areas. Overall, this is an excellent app that has provided many financial benefits.
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Mint is another app that you can connect your financial accounts to in order to manage them all – and your money – more effectively. When you get connected, you can track your budget and spending while working towards a better credit score. You will get personalized alerts when you are about to go over your budget which is cool because you get that heads up so that you can figure out what the best route for you is.
In addition to that, there are some safety features that many consumers seem to like. They monitor any suspicious activity in your accounts and let you know of any concerns as soon as they come up.
Mint is an app that has been widely used by a variety of people. They offer some great benefits to consumers which have enabled people to put themselves in a better situation financially.
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You Need A Budget
YNAB is an app that takes things to the next level. It goes along with the idea of giving every dollar that you earn a job. This is called a zero-based budgeting system, and it even requires that you pay an initial investment. This app will actually cost you either $84 per year or $11.99 per month.
If you are willing to pay this fee, then you are able to work with the many benefits that this app offers. Paying some money for this app can even make you feel more inclined to stick to the goals that you originally set out.
In addition to the traditional features like the ability to connect a bank account and set budget goals, you’ll also get access to educational materials and free workshops that teach you about financial management.
All in all, this is an app that can certainly propel you towards your financial goals.
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EveryDollar enables you to track your spending while maintaining your financial goals. This also requires some investment on your part. You will have to pay $129.99 per year after the fourteen-day free trial. This app will give you the ability to connect multiple devices to one account that will give you a more streamlined service.
In addition to the automatic spending tracker, you can manually enter anything that you spend. This is great for being able to track what you spend in cash because many people spend more cash than they realize.
EveryDollar may be a little expensive but there are certainly some great features that come with it.
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Goodbudget is a budgeting system that works from an envelope system. This means that you put a portion of your monthly income towards different funds. For example, you have separate “envelopes” for things like gas, rent, food, and so on. When you are a user of this app, you can connect multiple devices in order to track your budget.
The only real downside about Goodbudget is that you are not able to connect your bank account. This means that you are going to have to put all of your purchases in manually. Though some people like this because of the fact that they don’t like syncing their bank accounts in apps like this.
Overall, this is a great app that can certainly help you out financially. You just need to do a little more on your end in order to use this app effectively.
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If you are trying to set out a budget with you and your partner HoneyDue is certainly going to be the app for you. It allows both you and your partner to track your joined financial life in one place. This is great for couples who are adjusting to a new life together or even couples who have been together for years that feel the need to better their financial life.
While working together, you can set up some of your monthly rules for budgeting and even categorize your expenses. In addition to that, you will always receive reminders when you have any automatic bills or subscriptions coming up.
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Setting up a budget that pays your bills, covers your wants, and enables you to put some of your hard-earned money aside for savings and investments is something that can have a serious impact on your financial life. Budgeting can be very simple if you let it be, too. If you just stick to your budget for a few months, you can improve your financial situation and be confident about what lies ahead.
However, budgeting does take a little bit of work and a whole lot of self-control. Just commit to the discipline that is necessary and you could find yourself in control of your finances for the very first time in your life. How good would that be?
When it comes to budgeting, you don’t have to pull out a pencil and a paper ledger these days, either. Each of the apps discussed above can make budgeting fast, easy, and even a little fun. In most cases, all you have to do is connect your bank accounts to the app and then follow the prompts to get started with your very first budget.
So, if you don’t have a budget yet, make sure you download an app or open a spreadsheet and start taking control of your finances as soon as you can.
Thanks for reading how to budget money.
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