There are a number of budgeting philosophies to help guide us through our financial journey. One often cited technique is the 50/30/20, with 50% of your budget going to needs, 30% to wants, and 20% to savings.
This method is a great guideline in the macro, but during a financial crisis, you may not have any extra income at the end of the month for savings. Therefore, the first step is to adjust your spending habits.
Create a Monthly Budget
Keeping a monthly budget will help you track your expenses and understand where your money is going. It will also give you a bird’s eye view of your financial situation and allow you to better strategize your spending habits.
You should keep a detailed log of your spending for one month. If you typically use debit and credit cards and have an online banking account, then you already have a log of the past month.
Create a basic spreadsheet with separate categories for income, expenses, and savings and input information from account statements, bills, and pay stubs. Then, determine which expenses are variable and which are fixed. Fixed expenses are mandatory and don’t change (rent, car payments, childcare etc.) while variable expenses typically change from month to month (groceries, gas, gifts, eating out, holiday budget etc.). Check out our post about money saving tips.
If your expenses exceed your income at the end of the month, you’re overspending. You must cut out unnecessary fixed expenses and figure out how to reduce variable expenses.
Cut Out Unnecessary Expenses
Once you’ve created a thorough budget, you can begin to analyze your spending habits and determine what is essential and what is frivolous. Create a list of variable expenses and fixed expenses that are not absolutely necessary and rate them based on importance. Then, start cutting the least essential fixed expenses. For example, do you really need that streaming service subscription? Can you switch cell phone plans? Are there any unused subscriptions hiding in your bank statements?
The next step is to reduce your variable expenses like gas, utilities, random purchases (books, clothes, apps, groceries, etc.). This step often requires creativity and will power. Taking public transportation, carpooling, or planning your errands in clusters so that you drive less are all ways to reduce your gas expense. Instead of buying coffee at the café and eating out, you can meal prep and make coffee at home. Here are some summer staycation ideas. Rather than purchasing books from Amazon, you can get a library card. There are also many cash-back and coupon apps that help you save on purchases.
If you’re ready to make some sacrifices and get creative, you should be able to reduce your monthly expenses substantially and use any excess cash to pay off debt.
Pay Off Debt Strategically
High interest debt is a financial killer. Your credit will suffer, and the interest will unnecessarily eat away at your income. Therefore, paying off your debt is a top priority, and you must do it tactfully. You can start paying off your smallest debts first before moving on to larger ones. This is known as the snowball method, or you can pay off your debts with the highest interest rates first, known as the avalanche method.
The proper debt relief solution will be unique to each individual. Americor can help you navigate your options. You can get a free debt analysis to find out if you qualify for debt settlement, and determine if it is a viable option. Talk to a certified debt consultant today.
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