It has always been important to manage your personal finances but now more than ever. The world is a different place from the one we knew 18 months ago before the dreaded COVID-19 pandemic swept the planet. Many people have lost their jobs or had their hours cut by employers, resulting in slashed budgets and their purse strings tightened.
Creating a budget and analyzing your spending habits may seem tedious, but it is essential. It would be best if you lived within your means regardless of your household having a monthly income of $2,000 or $20,000; even those people earning large salaries can and do endure money problems.
Create a Detailed Budget
Your first step to managing your finances is to create a detailed budget, so you know exactly how much money you have left once your essential bills and living costs, which is known as your disposable income. Professional gamblers have done this for years; they call it bankroll management. Someone betting for a living on Vegasbetting.com will only ever bet with what they can afford to lose. You should only really spend what you can afford to. The principle is the same.
There is no need for fancy accounting software when creating your budget. A simple spreadsheet or writing it down on a piece of paper will suffice.
Start by listing all your guaranteed income, and do so down to the last cent. This figure is made up of your salary, benefits, etc. Do not include periodic payments to your income, such as overtime payments, because they are not guaranteed. You want to arrive at an overall figure that is the worst-case scenario.
If you do have occasional, semi-regular payments, such as dividends from investments, consider listing these. However, do so as an average over the year. For example, if you receive $120 per year from investments, list this as $10 per month if you list them at all.
Do Not Forget About Irregular Costs
It is time to make a list of all your outgoings or expenditures now you have arrived at your total monthly income figure. This section can be a little daunting because you are likely to have many more expenses than income.
Essential costs are the first items to put into your spreadsheet. These are fixed costs that you have to pay regardless of anything else, including rent or mortgage payments, powering your home, and any debts that need repaying.
Next up, jot down all your outgoings that can be variable and that you have some control over. Include your average grocery shopping bill, not forgetting to list the average cost of rarely purchased items such as cleaning products and the like.
Your last set of expenses are non-essentials or luxuries. Think along the lines of cable fees, the internet, magazine subscriptions, etc.
It is essential to list other irregular costs like car maintenance, buying clothes, and going to the hairdresser. If you splash out and have your hair cut twice a year at $100 per time, that is $200 a year and $16.66 per month you have to budget for.
It Pays to Shop Around
Subtract your total expenses from your total income to arrive at your disposable income, the money you have available to spend each month. It may be a figure you are happy with, or you may want to improve it. The only way to do the latter is to earn more money or reduce your outgoings.
The first option of earning more money is not as easy as it seems. Reducing your expenditure is simpler.
It pays to shop around when it comes to your service providers. Contact different power companies, cable and internet providers, anything where there is competition in the marketplace for your custom. You can play them off against one another — you can even threaten to leave if they don’t give you a better deal — and you will be surprised at how much money you can save just by signing up to a different tariff.
We are living in stressful times, do not let money worries stress you further. Get your finances on track with a simple household budget.