It’s absolutely astounding the number of people who do not live by a budget. We’re told time and time again when we are growing up that a budget is something that we should implement into our lives. It allows us to understand how much we earn, how much of that sum should be paid in taxes, how much should be spent on the bare necessities of life, and how much is left over to be spent on extras and luxuries. But still, many of us choose to ignore this advice and simply live by spending whatever is available in our accounts. The problem? What’s in our accounts isn’t always necessarily ours. We are often given overdrafts and are tempted by credit cards or loans. As soon as we are granted this excess money, we take on the mindset that it’s rightfully ours and thus we can spend it. This is where debt can start to creep into our lives, and before we know it, we’re deep in the red and struggling to get by. It’s bizarre that this is all so easily prevented with such a basic skill as budgeting, yet so many people still stumble and fall into the dilemma. So, if you want to stay in the black and vanquish debt-induced stress and misery, it’s time to start working on a personal budget and living by it. Here are a few steps to get started.
Working Out Your Total Income After Tax
Many of us misjudge the amount of money that we actually make. We see our “salary” written down and assume that this is the amount that we have to spend. But this isn’t necessarily true. In fact, more often than not, you’re going to have to deduct a range of taxes from this sum before you get your true take-home pay figure. You have to bear in mind the cost of federal taxation, state and local taxation, and federal tax reform. So, work this all out before starting to budget. It will give you a more accurate representation of what you can and can not afford.
Covering the Necessities
Now, there are certain things in life that you need. Things that you can’t live without. These include a home, energy, sustenance, and sometimes a means of transport in order to secure a job or work. However, many of us spend excessively in these areas, when there are various ways to save money on even the most basic of things. Let’s take a look at how to cover the necessities for as low a price as possible. This will leave you with more disposable income to enjoy the finer things in life!
Your property is likely to be the main thing eating up your earnings. This is true whether you are renting or buying. However, whether your monthly payment will be a rental payment or a mortgage payment, you do need to ensure that you’re inhabiting a property that you can afford. Rental is relatively easy, as you aren’t tied down to a single property in the long term and if you find that things are becoming unaffordable, you can move out and into somewhere a little bit cheaper. But with mortgages and home ownership comes a little more commitment and responsibility. Make sure to use a house loan calculator before signing any contracts to determine the overall and monthly cost of each property you’re interested in and to ensure that you can meet up to these payments.
Of course, you can’t really just decide to live without electricity, gas, and water. You can minimise your usage to a degree, which is good for both your pocket and the environment. However, the best way to reduce your energy costs as much as possible is to scour the market for the best deal regularly. Many of us sign up to the first company that presents itself to us or stick with the same company for years even though others’ may have changed their rates and be offering something more cost effective. Don’t be afraid to switch up suppliers or challenge the company you’re with – they may offer a price match to maintain your custom.
Food and Drink
Food and drink are basics for being able to function. But so many of us waste excessive amounts of money on items that we don’t need or for branded products that have cheaper and extremely similar alternatives. Budgeting your food shop is extremely easy with just a little organisation. Instead of heading to the store without a set plan of what you’re going to buy, make a shopping list with all of the necessary ingredients for the week’s meals. This will prevent you from picking up random products that you’re unlikely to use. Also, consider going to lower cost stores. They may be a little further from home, but the convenience of convenience stores is reflected in their prices.
Now, a car isn’t always essential. In fact, a lot of the time, it’s a luxury. So first you need to determine whether your vehicle is a necessity or not. For some jobs and for certain individuals living in particularly rural and out-of-the-way areas it will be a must. However, for most, there are sufficient public transport links to get by easily without owning a vehicle. If your vehicle is a luxury, you need to decide whether you’d rather have this convenience and are committed to spending your disposable income on it, or whether you’d rather have the money free to spend elsewhere. Still, there are places that you can save. Consider smaller engine sizes to reduce the cost of insurance. You should also consider opting for a second hand or used vehicle instead of a brand new vehicle. If possible, save and purchase your vehicle outright too, rather than engaging in finance plans that can charge you high rates of interest.
Purchasing Luxuries in Moderation
Now, once you’ve deducted all of the above costs from your salary after tax, the figure that you’re left with will represent your disposable income. For some, this might not be much. For others, there will be a fair amount of cash. Regardless of how much you have to play with, it’s important that you practice self-control and restraint. Just because it’s there to be spent doesn’t mean that you have to spend it. Be sensible and think every purchase over before splurging cash!
Following these steps should help you to happily live within your means and by your budget. So, start planning today, and your financial future should remain as secure as possible!