Three Simple Steps to Revolutionize Your Budget
Do you want a vacation in the Caribbean next year? Save for a new couch? Watch concerts at Strathmore regularly? Having an effective budget can help us reach specific life goals. Contrary to public opinion, budgeting helps us achieve financial freedom.
Less than half of Americans have a budget, and only a fraction of them can stick to it. Many have tried using an app that tracks all spending. But given our busy urban lifestyles, it is often difficult to check such applications regularly and build it into our routine.
Follow these three simple steps and you will find it easier to stick to your budget and — more importantly — feel financially free.
Step 1: Pay yourself first. Want to save $2,600 for a nature trip to Alaska? Automatically set aside say $100 per paycheck to an online savings bank, and you’ll be in Glacier Bay a year from now. Having it stashed in an online bank will help you generate a higher interest rate. Moreover, it will give you that psychological separation, so you don’t get tempted to raid it during your next bar hopping night.
Step 2: Assign all fixed expenses to come from your main checking account. List and tally all your fixed expenses. They may include your rent or mortgage, cell phone services, Netflix subscription, PEPCO bill, or your student and car loan payments. While you’re at it, ask yourself which of these fixed expenses you can lower.
Let’s say your total fixed expenses for the month is $2,600. Tell your employer’s accounting department to deposit $1,300 per paycheck to your main checking account (assuming you get paid twice a month). Since you know for sure this account will be regularly funded by your paycheck, you can then set — and forget — these fixed bills to be paid automatically.
Step 3: Use a debit card from a second checking account for fun and shopping. Tell your employer’s accounting department to send your remaining paycheck to a second checking account. Whatever is left here is the money you can use for entertainment and Amazon shopping. Assigning a dedicated account for fun expenses can prevent you from going over budget. It will also make you feel less guilty next week when you dine at your new favorite restaurant in Pike and Rose, since you have the money for it!
It is important to check the balance of this account regularly, so you’ll have an idea how much is left in your ‘Fun Fund’ for the month. Alternatively, if you have, say, $400 per month going into this fund, you can withdraw $100 a week and use cash whenever you go out. This may help you control your spending, since this allows you to monitor the money in your wallet more easily.
Budgeting can be fun, because you know you are on track to meet specific goals while also being able to enjoy life now. Soon, you will realize the Caribbean trip you’ve been planning for months is well within your reach.
So what do you think? What budgeting techniques have worked well for you? I’d love to hear your thoughts and experiences.
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