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Budgeting 101: The Essentials

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While the majority of people understand the benefits of budgeting, the fact of the matter is that not all of them understand how to do it properly. A common misconception when it comes to creating a budget plan is to simply “start putting some money aside”. And while this certainly is a crucial step in budgeting, there’s so much more to it.

In order to improve your personal finances, you’ll need to start with creating a solid budget plan. Of course, you can always try to improve your finances by exploring some additional income options, such as trading and investing. Or you can buy Bitcoin and try to improve your finances that way. But the most important thing to learn is how to properly manage the finances you already have, before you move onto exploring other ways of boosting your income.

So, let’s start from the beginning.

Know exactly how much money you have

First things first, in order to be able to start budgeting, you’ll first need to know exactly how much money you have at your disposal. Here, you need to figure out how much money you’re left with after taxes and all other necessary expenditures. Most commonly, the paycheck you receive will be your clean income but it can sometimes happen that you’ll need to deduct taxes from the total amount of money you receive – unless your employer is the one who takes care of this. Once you determine how much money you have, it will become significantly easier to determine what to do with it and how to manage it moving forward.

Accurately calculate all of your expenses

As soon as you determine the size of your income, you’ll also need to accurately calculate your expenses. Here, you’ll need to account for every coin that leaves your pocket each month. Of course, first you’ll need to calculate how high your mandatory expenses are, such as bills, taxes, healthcare and mortgage, and subtract them from your income. The money you’re left with will be the amount you’ll have at your disposal for all the other expenses, such as food and groceries, gas, and other “wants” and “needs”.

See if you can cut some costs

Once you’ve taken care of the previous two steps, your next task will be to try and determine if you can cut any costs. In order to improve your finances, and aside from trying to earn more, you’ll also need to get into a habit of spending less. So, check all of your subscription bills and see if there are any better alternatives you should go for. Determine how much money you spend on so-called luxuries, i.e., shopping, eating out, Starbucks, and see if you could potentially spend less on those. Of course, proper budgeting will require you to give up some habits you currently have, but once you see just how much you’ve managed to save up, it will be well worth it.

Consolidate your debts

Furthermore, you also need to take a look at your debts if you wish to keep your personal finances healthy. Oftentimes we don’t even realize just how much we spend on covering our various debts. But the good news is that we can often easily lower the amount of money we spend on debt consolidation. For instance, if you can, try to combine all of your separate debts into a single one and that way have only a single monthly payment to make. This way, you’ll be required to pay a single transaction fee instead of multiple ones, which can also help you save up a bit in the long run.

Automate your savings

If you have any room in your budget for savings – and by now you should – make sure you automate them. By doing this and ensuring that the money you intend to put towards your savings is automatically deducted from your income, you’ll be much more consistent. People often make a mistake and choose not to automate this process which – in more instances than not – results in infrequent savings deposits or even no deposits at all. Needless to say, being irresponsible with your savings won’t really bode well for you in the long run.

Keep track of your progress

In the end, you will need to keep track of your progress to ensure that you’re on the right track. In the beginning, reassess your budgeting skills every week or two to see how well you’re doing and if you need to change anything. Once you get the hang of it, you can start inspecting your budget once a month or even quarterly.

Even though it may sound difficult, learning how to budget properly is actually quite easy. But you will need to say goodbye to some old habits and embrace new ones in order to ensure that you stay on the right track.

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