The biggest key to learning how to budget effectively is learning how to budget money and the way income and expenses flow.
Budgeting goes hand in hand with effective money management and money management can provide countless financial benefits.
By managing the flow of money in and out of your wallet you can stop living paycheck to paycheck and start investing in a brighter and more stable financial future.
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Money management also doesn't have to be complicated. In the end, all you need is a few key lists and calculations to create an effective budget and start making your money work for you.
Budgeting and money management work together to help you stay financially organized, focused, and successful.
A budget might include many financial factors like income, expenses, bills, future plans, past debts, assets, and investments. Money management focuses a little more on handling your funds and less on anything else. A money-focused budget focuses more on how much money you make and how much money you spend.
By creating a budget with good money management you can stop living paycheck to paycheck, increase your credit score, build up your savings account, become debt-free, save money, prepare for unexpected expenses, and finally feel in control of your spending habits.
Budgeting money effectively is all about knowing your personal finance goals and making long-term plans to reach them.
First, you'll want to calculate how much money you have coming in each month, also sometimes known as "home pay." This is the income your bank account actually sees each month after taxes have been accounted for.
Second, figure out what your top money priorities and goals are right now. It might help to think of a list of 3 to 5 things you want to accomplish this year.
Third, make realistic plans to reach those goals. This is when you'll start to look at all your outgoing money: where your money needs to go and where you want your money to go.
Many budgeting methods will include making categories or sections for where your total income will go each month. Include in these sections any goals or priorities you might have and make concrete plans for how you'll manage your money to reach those goals.
Let's say you have a $5,000 car loan you would like to finish paying off as soon as possible. Look at your finances and see what options you have for making payments toward that loan.
Maybe you'll find that after taking care of other monthly fixed expenses you have an extra $400 you could put toward that loan each month, allowing you to finish paying off that loan in the next year or so.
It might help to think of money management as making Financial New Year's Resolutions. Where do you want to be financially in a year's time? What can you do now to get yourself there?
Budgeting tips go hand in hand with good money management. A good budget is all about creating an automated inflow and outflow of your monthly funds.
Making investments is a great way to beef up your financial portfolio. There are probably a trillion ways to invest, but the idea behind investments is that you put money into something that will give you more money in return later.
This is called compounding interest.
A helpful tip to remember when going into any investment is the rule of 72. This rule means that if you take 72 divided by the interest rate you’ll figure out the estimated number of years it will take for your interest to double your initial investment.
Figuring out where to even put your budget can get complicated. You can use excel or make your own table in Word or Google Docs or any note-taking program of your choice.
There are also many free budget templates online that you can print out and use. Budget tools are all around if you take the time to look and decide on which ones best suit your needs.
You can also use budgeting apps to keep track of all your bills, expenses, plans, and goals. Some of these apps even allow you to connect your budget to your financial accounts.
Sometimes it can be difficult to control your varied expenses throughout the month and track your spending.
Make controlling how much you spend each month easier by using a prepaid debit card. With a prepaid card, you load money onto the card kind of like a gift card to yourself.
Prepaid cards are a great way to avoid overdrafting or overspending because you can only spend what's on the card and no more.
Getting an extra source of income can really come in handy. There are a million different kinds of side hustles any ambitious person these days can get into.
You can babysit, drive for a rideshare app, or sell your own products. The possibilities are endless and it never hurts to have a little extra money each month.
Debt can be a real financial weight on your shoulders, but it can also be a necessary resource in order to get a house, a car, a college education, and much more.
Nevertheless, decreasing debts can still help alleviate some of that weight and provide more financial comfort and peace of mind. So it’s important to budget with paying down your debts in mind.
Having the right tools available to you makes any job easier, including budgeting and money management.
Download a free monthly budget worksheet.
All you really need to budget money is a few lists, a calculator, and a plan. Practice using a budget now so that you can control your finances instead of your finances controlling you.
