Most people encounter financial challenges at some point in life; some challenges are more easily resolved than others are. When a person’s primary goals are saving money, budgeting to help make ends meet, and to avoid a financial crisis, there are several helpful tips to keep in mind.
How to create a basic budget plan –
Rather than thinking of a budget as a list of spending restrictions, it’s helpful to think of budgeting as a valuable tool that can lead to financial freedom. There are no set rules for creating a budget; a person can customize a plan and make changes or updates as needed. The following list shows several basic categories to incorporate into a basic monthly financial plan:
- List of basic expenses, including food, shelter, and utility bills
- Categories for transportation expenses
- Designated budget amount for clothing and other necessities
- Allotment for spending, donations, gifts, etc.
- Money aside for emergencies, such as unexpected medical expenses or car repairs
Categories can be customized to fit a specific person’s immediate needs and long-term financial goals. It is always a good idea to designate funds for saving money and paying down debt as part of a budget plan.
Progress tracking and accountability –
It does no good to create a budget and then disregard its contents for the rest of the month. Particularly when paying down debt is a primary goal, it is important to closely monitor spending and bill payments to make sure financial activity aligns with the existing budget plan. It is helpful to enlist support from a close friend or family member or by using a financial planning app to seek accountability and encouragement to stay on task with a budget.
Beware of budgeting pitfalls –
Numerous issues affect a person’s financial status. The typical household experiences a fluctuation where some months or years are more financially stable than others. There are several bad habits to avoid, however, which often wind up making an unstable financial situation even worse. Consider the following issues, which are among the most common pitfalls that can cause finances to get out of hand:
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- Paying big bills, such as medical expenses with a credit card
- Using credit as cash for personal spending
- Only making minimum payments on an unpaid credit card balance
- Falling for a consolidation scam
One of the top causes of debt today is medical expenses. Many people, even those who have health insurance, find themselves unable to pay medical bills, so they use a credit card, thus swapping one debt for another. If a person determines a need to do this, it is critical to make sure the balance on the credit card is settled as soon as possible. Financial problems may also arise if a credit card keeps being used as cash without the balance being paid in full by the end of each payment cycle.
The higher the credit card debt and the longer the balance remains unpaid, the more interest a cardholder will have to pay. Such habits can quickly become a vicious cycle of spending without having the means to pay off debt. Careful budget planning should always include making informed decisions. Unfortunately, there are a lot of scammers out there who prey upon uninformed people who may be in great need of debt relief. These scammers offer debt consolidation services, which may not only not help a person resolve a financial crisis but could ultimately make matters worse.
Set attainable goals each month –
In order to be successful in personal financial planning, it is helpful to set goals. Such goals should be achievable. For instance, “Become a millionaire by the end of the year” is not a realistic goal for most people. However, “Only use cash for personal expenditures this month” is a goal within reach. Getting into a routine of setting small goals every week, month, and annually helps to develop a keen insight into one’s own finances and makes it easier to avoid problems.
Budgeting with an inconsistent income –
It’s easy to create a monthly financial plan when income stays the same. Many people work solely on commission, however, or are paid by the hour and work a different amount of hours each week. This can create budget challenges. It’s a good idea to have a backup plan in mind. Perhaps an issue may arise where the basic expenses cannot be met in a particular month. By thinking ahead and determining which bills have priority, it’s easier to overcome challenges when they arise.