Creating a budget is critical to reaching financial goals. There are many resources available offering tips on how consumers can pay off debt and make the most of their money. For example, Bankrate.com offers a variety of personal finance information, including “Secrets to Creating a Budget.”
South Source takes a look at some of the steps to creating a budget and the ways people can stick to it.
Whether it is in a checkbook ledger, notepad, or an Excel worksheet, consumers should record every purchase no matter how small, including ATM fees. This is the first step because knowing where their money is going can help people make an educated decision about how to allocate it.
- Make savings contributions automatically
Financial advisors recommend paying yourself first. A good way to do this is to have paychecks directly deposited into savings accounts. Short-term savings can go to an interest-bearing savings account, six-month certificate of deposit, or money market fund, while long-term savings can be directed toward a retirement savings plan, such as an individual retirement account (IRA) or employer-sponsored 401(k).
- Define spending and priorities
Budgeters should identify what their needs are vs. their wants. Deciding what is most important and what they want to save for can also help them cut back spending on things that are less important.
- Strategically pay down expensive debt
Some debt is generally considered good (ex. mortgage and student loan), while other debt, usually from high-interest credit cards, is considered bad.
Interest payments made to credit cards not only might be costly, but also take away the ability to use money toward savings or fun activities. Consumers should make a clear and honest plan on how to tackle bad debt and commit themselves to it.
Job loss, auto repairs, big medical expenses, or something that you never thought would happen — prepare for the unexpected by building up an emergency fund.
Most experts advise keeping between three and six months worth of living expenses set aside in an emergency fund. The amount that should be set aside depends on each individual situation.
Author: Darice Britt