Or maybe you’re just ready to start making some smart financial decisions ?
One of the many consequences of the tragic COVID-19 pandemic is a looming global recession. Even before the crisis, over one third of American’s would need to borrow money to cover an unexpected $1000 expense. With that in mind, now is an ideal time to prepare a budget and get your financial house in order.
Fun and expense management aren’t words you usually find in the same sentence. But, budgeting doesn’t have to be a source of stress and tension within a relationship! In fact, research has shown that saving and investing behaviour, has an impact on the quality of a relationship. Additionally, it affects the subjective well-being of people in relationships.
1. Calculate your income
The first budgeting tip is to know how much money you have coming in every month. This should include money from your salary, any additional jobs you may have or side hustles. You should also include money from any passive income streams you may have.
Are you a freelancer or don’t receive a regular income every month? Calculate an average based on your last few bank statements. Next, subtract any regular deductions such as student loans or tax, to get a number for your net income.
2. Track your spending
It probably sounds so obvious that it’s not worth mentioning – but it is essential to know exactly how much you’re spending every month. Money can be a stressful topic and some couples may avoid having the difficult conversations around finances altogether! This fear associated can lead to people avoiding the examination of their spending habits, which can spiral out of control.
Use an expense tracker like Monshare. This will allow you to split and share bills, view your bank balance. Regularly tracking your spending and saving will make money conversations easy.
3. Understand the difference between need and wants
You may think you ‘need’ your luxurious gym membership or the trendy new handbag from your favourite designer. However, many expenses fall underneath the ‘want’ category.
Wants are leisure or entertainment expenses which provide us with a comfortable lifestyle. Needs are expenditures which are essential to your physical, mental or financial well-being. Example needs include, housing mortgage/rent, groceries, transportation, insurance and debt repayment.
Categorise your expenses into needs versus wants & then factor this into your budget. Consider a rule of thumb, such as the 50/30/20 rule, popularised by Elizabeth Warren. This is a great method of allocating your income.
4. Set clear (and realistic!) goal
So now you know what your monthly income & outgoings are and you’ve categorised your expenses into needs vs wants. It’s now time to set goals on how much you would like to save every month. Maybe you’re dreaming of a new car? Or perhaps you want to reduce your credit card debt? It all starts with a goal!
If you’re deep in debt, you may feel highly frustrated and desperate to clear your debt ASAP. However, setting clear and realistic goals means you will be much more likely to keep to your budget. Consistently budgeting, you will quickly free your debt and allow you to reach your saving goals.
5. Assess and revise your budget
Our final budgeting tip is to regularly assess how closely you are sticking to your budget. Budgeting is an ongoing journey! You may find out that the budget you laid out planned is difficult to follow. Or due to changes in your financial circumstances you may need to revise your plan.
An important part of budgeting is assessing your budget and taking a long-term approach to your finances. Make adjustments to your plan when necessary and you will soon be on the road to great financial health!