It's time to build a budget! Now what?
Guest Post by Ruth Kissel
Budgeting is mostly easier said than done. Here are 5 hacks and tips that will help you win with the right budget.
One of the most important things when it comes to budgeting is actually knowing how much money you make. The 50-30-20 rule is the “golden rule” for first-time budgeters. This rule states that you should put 50 percent of what you make towards things like rent and food, 30 percent to discretionary needs, which are expenses that you can get by without, if necessary, and 20 percent to savings. This 20 percent of savings is critical because it helps establish a rainy-day fund, even if we don’t see one in our near future. Automatic payment and savings apps can take away 20 percent of our earnings each month and put that in a savings fund that we are not allowed to touch in cases other than emergencies.
Do note that sometimes the 20% savings rule should be reviewed more carefully. For example, if you have a credit card debt with a 19% interest rate, keeping your money in a 2% savings account might not be wise. Money Compass can help you decide how much to allocate towards debt repayment.
Differentiate Between Wants and Needs
It is important to differentiate what is something that you want and something that is a necessity. Being able to do this will help you to cut out costs on extra items that you might not even realize are expensive. For example, think about whether you need that $5 latte or not. While it may not seem like a lot at the moment, a $5 coffee multiple times a week can quickly add up. If you need that caffeine fix, then it is a lot cheaper, and more affordable, to make your own coffee at home before heading out the door.
Make a Schedule
It’s hard to accomplish anything without a set plan. This is why in college, we have class schedules. And just like class schedules help us keep our school days on track, budget schedules help us keep our money in order. By making a schedule, we are able to pay off any expenses we have before we spend all our money on wants over needs.
Debit Cards > Credit Cards
While credit cards are important for building a reputable credit history, they have their dangers. Often times, credit cards can lead to massive overspending, something that leads to the vicious cycle of debt. Debt is a very difficult hole to climb out of once we start digging it. Credit cards allow us to spend money that we don’t have, and it is critical that a credit cardholder have a great amount of self-control in order to keep themselves out of debt.
Unfortunately, many people have poor self-control, especially when we have the false idea that we have an unlimited source of money (from our credit cards), which is why debit cards are extremely useful and beneficial and help us keep our money in check. Unlike credit cards, who have yearly (and usually expensive fees), debit cards usually have no fees that come with them because the transaction from debit cards comes straight out of your own bank account. Debit cards draw on money that you already have, which essentially guarantees you staying out of debt. The beauty of debit cards is that they do not allow you to spend money you don’t have.
Make a List of Goals
Having a list of goals allows you to hold yourself accountable. Whether they are long term goals or short term, they act as a daily reminder of what you want to accomplish to help stay on track. If your goals seem too overwhelming, then break them down. Make yourself checkpoints each month, so that you can accomplish your goals in smaller increments. These goals will help you to save money and live a less stressful post-graduate life.
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