Imagine having the money to live comfortably, take a dream vacation, pay for your child’s education and maintain your lifestyle during retirement. By adhering to a spending plan, it is possible to eliminate debt, save for a rainy day and alleviate the stress you feel every month when you pay your bills.
Budget: Spending Money on Purpose
To achieve financial freedom, you must create an intentional spending plan and stick with it. A spending plan is necessary in order to meet your short and long-term financial goals. To start, get a clear picture of your current financial situation:
- List all of your fixed expenses, such as utilities, groceries and debt payments.
- List all of your irregular expenses. These expenses are due throughout the year, including taxes, car maintenance and vacations.
- Every other expense is discretionary spending. This includes shopping and your daily gourmet coffee run.
- A, B, C your expenses. A’s are needs. B’s are needs you can be more efficient with, like utilities or groceries. C’s are wants.
- Total your expenses and compare them to your net income. If your expenses total more than your income, then it’s time to reassess your spending habits and make cuts from your B’s and C’s.
Save: Paying Yourself First
- Make it automatic. Sign up for your bank’s automatic transfer program and move a percentage of your paycheck to your savings account each payday.
- Ask for discounts. For example, ask your insurance company about discounts that you may qualify for, which can lead to savings on your premium.
- Think before you buy. To resist impulse buys, wait 24 hours to buy an item. It may turn out that you do not need it after all.
Next week we will share more information on ways to eliminate debt and ways to help you stick to your budget.