In the United States, every April is recognized as Financial Literacy Month. April is the perfect time to learn a little about finances and apply it to your own life. While the word “budget” can be daunting for many people, some might not know where to start, and others may be skeptical about changing their current spending lifestyle. But the fact is that everyone needs a thought out and sensible plan when it comes to how you are managing your money. Millions of people live from paycheck-to-paycheck each month, and this can severely hurt not only your credit, but your ability to retire comfortably later in life. Finding items in your budget that you can cut back on, or cut out completely could potentially save you hundreds of dollars every month! Here are some great tips to hone your budgeting skills and build your savings right before your eyes.
Always Budget to Zero
The first step to getting your financial life in-check is to plan out and set a fixed budget for your household. Prior to the start of each month, you and/or your spouse should budget to zero, or in other words, account for every dollar that you will accumulate for the next four weeks and classify it. Your assumed net income for the next four weeks should be allocated appropriately into categories such as rent/mortgage, utilities, phone bills, gas, etc. But most importantly, you should have between 8-10% set aside specifically for savings or investment purposes. If you are able to set aside all of your fixed payments for the month, this includes your money to be put away, you can determine how to allocate the remaining portion of your income. And if at month’s end, you find that you have come in below budget, stock away the remaining money as well.
Take Into Account Your Debt
Although it is so important to plan for the future, your current debts are a much more critical concern and should be paid off as quickly as possible. Putting away money in savings is great, but if you are someone with outstanding student loan debt, a car payment or a recently acquired mortgage for a new home, your focus should be on getting out from under these obligations. Your credit score is immensely important and should be taken seriously. Make more than the minimum payment if possible every month to pay off loans sooner. Saving less now while paying more to the bank will allow you to save more money once a significant portion of your debt has been paid. If your credit score is below average and you find it difficult to find banking options, don’t fret. Many banks now offer second chance banking opportunities that allow you to open a checking account despite prior shortcomings. Don’t let your debt keep you from a fruitful financial future.
Track Your Progress
Just like losing weight or investing in the stock market, keeping up with the headway you’ve made helps keep you focused and goal-oriented. Many find that it helps to keep a log of the purchases you make to prevent overextending yourself. If you often rely on your credit card to make purchases, it would be beneficial to remain reserved and not add to existing debt. Using a debit card will help you keep track of the money you have and are able to spend instead of being shocked by a large bill at the end of the month from your credit card company. If your bank has a mobile application, use it to see all previous purchases and track your purchase behavior against your budget regularly.
Set Goals for Yourself
An important aspect of financial literacy is to set goals for yourself especially as you begin to see the results of your hard work through the growth of your savings. The first step is to set attainable goals for you and your spouse. The better you become at managing your finances, the more money you will have to put away for your future. Once you have collected a considerable amount of savings, you could begin pushing some of your earnings into an investment account, or strive to continuously increase the amount you hope to save on a monthly basis.
And what is important to remember is that you should never take your foot off the gas. Once you’ve established a savings routine, stick to it. It may seem exhausting having to worry about every penny you earn, but those pennies will add up when it comes time for retirement.
Don’t Make Comparisons
Many people are prone to compare themselves to friends, neighbors and loved ones when it comes to physical possessions and wealth. Although it may seem easy to say you don’t have the same luxuries as others, you don’t fully know anyone else’s financial position but your own. It could be that while they spend all of their money on boats, pools, and motorcycles—they aren’t properly saving and/or investing for retirement which will make things much more challenging financially later on in their lives. All you can worry about is your own financial well-being and do everything you can to support your family adequately. Accumulating wealth takes years, so pace yourself and feel proud of how much you have not only earned, but have managed to put away for retirement.
Financial Literacy is one of the keys to financial success, so this April, take some time to set a budget and really dive into your family finances.