Who doesn’t want to feel more comfortable, less stressed out and be able to afford occasional luxuries, like travel, gadgets or some nice clothes?
Your finances can impact all areas of life, and can even put an unnecessary strain on your love life, so it is a good idea to learn a few useful things about effective budgeting. Living within one’s means isn’t all that difficult, nor does it require huge sacrifices – you just need to be realistic, ambitious and motivated to make some positive changes. Let’s look at some practical examples of things you can do to put a rein on your finances and start being more strategic with your spending.
1. Focus on prevention rather than the cure when it comes to maintenance costs
You see people do this with their health, their home and their car – they neglect regular maintenance and make do, until the moment something goes terribly wrong and they are forced to remedy the problem quickly. The problem here is that if you allow a small problem to grow out of control, you can end up spending a whole lot of money trying to fix it.
Let’s say your car is chugging along just fine, but you’re not the first owner and have had it for a while. You may notice small problems creeping in if you just do some regular car maintenance, like replacing worn down parts, changing the oil and having a general checkup from time to time. These principles can be applied to any aspect of life – regular maintenance is a huge money-saver in the long run.
2. Make sure to pay yourself for all the hard work you do
Sometimes finding a bit of extra money in your budget that you can stash away is just a matter of perspective. Don’t see it as taking some money away from a salary that already has to cover plenty of expenses, think of it as paying yourself for the amazing job you do every single day. As financially savvy people have pointed out before, establishing that your comfort and financial security are a priority makes it easier to justify saving a decent part of your total income.
It can be as simple as taking about 5% of your income off the top as soon as you get your paycheck and putting it in a savings account. You can make such payments automatic, which is easier than always trying to resist temptations, and you can slowly increase the amount you set aside as you get more experienced with managing your budget.
3. When you need something done, do it yourself
While certain goods and services are fairly complex and well beyond our own skill level, with many things paying top dollar is more about convenience than anything else. If you buy in bulk, look for sales and cook your own food you can save a substantial amount of money, but it will require some effort on your part.
In the same vein, if you devote some of your time and energy towards developing some basic DIY skills, you can take a few fairly inexpensive supplies and make whatever you need. Taking the time to learn how to do some basic repairs yourself is also a good idea. Creating a small monthly DIY budget allows you to stock up on supplies and tools needed for all the crafting and repairs you’ll be doing.
4. Keep your monthly budget flexible and you won’t break the bank
Now, as far as your income, in a majority of cases it stays the same throughout the year or is at least fairly consistent. This means that you either have to make some more on the side or rearrange your finances from month to month to face new challenges or afford certain luxuries without having to dip into your emergency fund or stall your savings.
The simplest way of going about it is to do some budget fine tuning – e.g. if you want to buy a new TV or a fancy pair of shoes, you may have to eat out a couple of times less. Some expenses pop up every two or three months and some are seasonal, so you will have to divert funds from other areas during those periods. The story of John Steinert, a man in his mid-twenties who is just about to pay off all his student loans and is on a good track to retiring before sixty, shows that you can manage to live comfortably while saving, just as long as you have a good plan and keep things flexible.
5. Expect the unexpected costs
Last, but certainly not the least, you have to have some kind of buffer, which allows you cover unexpected costs without needing to take out a loan or raid your primary savings account. As we already noted, regular maintenance costs should be covered by your monthly budget – e.g. problems with your car’s engine or a serious case of mold in the attic fall under maintenance costs as they are something you should expect to deal with from time to time.
Unexpected costs include things like a long hospital stay due to injury, a friend announcing that he or she is getting married out of the bloom, theft, your phone falling down a flight of stairs and breaking, etc. Chances of things like this happening are not that high, but there are plenty of little things that can go horribly wrong, and you need an emergency fund separate from your main savings account to help you deal with these problems as painlessly as possible.
Applying these tips in your day-to-day life will help you cover the broad strokes of your financial planning, but it is ultimately up to you to set priorities and fine tune your budget. With a bit of luck, you’ll be well on your way to achieving financial stability in the next couple of years.