If you think of your finances as a house, then your budget is the foundation. A budget is a detailed plan for spending, saving and repaying debt if you have credit cards or loans you’re trying to pay off.
To know where your money goes, you should follow it closely. If asked, most people can tell you where their income comes from, how much they are paid, and how frequently they receive the money. However, most cannot do the same when asked about expenses. Tracking expenses is key to avoiding debt and reaching savings goals. The best way to do this is with a three-tier approach.
If you are not sure how to cut costs for your basic needs, you may find the following suggestions helpful:
Develop a weekly meal plan, make a list and do not veer from it, compare prices at different stores, and use coupons to save even more.
Eat something before you go shopping. Never shop for food on an empty stomach!
Plan ahead and pack a meal/snack if you know you'll be somewhere for an extended period of time to avoid dining out, picking up takeout, or ordering delivery. If you do eat out or go somewhere that does not accept dining dollars, try to order food that is reasonably priced.
The more meal prep you can do, the more you can save. There are countless recipes online or in books and magazines that spark ideas.
Buy house brands and generic products, which tend to be less expensive.
Choose a budgeting method
There are several ways to budget, and knowing which way is best for your unique personality and needs will help ensure your success. Examples of budgeting methods include:
This budgeting method entails getting your budget to equal zero after subtracting your expenses from your income. Any leftover money is put into savings or allocated elsewhere so you aren't left with extra money to spend.
This type of budgeting entails doing all of your budgeting using cash. With the envelope system, you plan how you'll spend your money each month and create envelopes with the allotted amount of money for each. Then, you only use the money in the envelope to pay for expenses.
For example, when you go grocery shopping, you'd use the money in your grocery envelope. If you run out of money, you can’t buy anything else in that category until the next month.
This budget approach emphasizes debt and savings repayment. Using this method, you'll set aside a set amount of money every time you receive a paycheck for debt and savings payments, and then, use the rest of your money any way you choose.
This type of budget consists of breaking down your expenses into three different categories: Necessary expenses, discretionary expenses and savings and debt payments. You use 50% of your budget for necessary expenses, 20% of your budget for savings and debt and 30% of your budget for discretionary expenses.
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