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Budgeting tactics for tough economic times: Feature Article
First, know what to include in your budget and create for yourself a security net. When people create budgets they often go overboard leaving themselves with very little. For example, many people think that when money is tight they should eliminate things from their monthly expenses, this is true, but there are things that should not be eliminated, possibly cut back some, but not eliminated entirely. For example, life insurance is an insurance type many people feel they can do without should times get tight. However, this is your family's financial security net. If you have dependents, be sure to have life insurance, and get the right policy for your needs. If money is tight, do not be dumb and get an expensive whole life policy, but do not eliminate it altogether either.You should also have other types of insurance. Make sure you are meeting your needs, and check to see if your existing policies exceed them. You do not want too little coverage, but too much coverage can be a financial drain that is unnecessary. So, go through your policies, and make sure you are insured, but not over-insured. Part of your security net should be a savings account or emergency fund. Start small and watch it grow.
Things that should be included in your monthly budget include: Housing: For many this is not a negotiable number. If you are living in a home too expensive for your income, consider making some changes in order to make your budget easier to follow. Debts: You should budget for far more than your minimum payment in order to pay debts off faster, and to not pay as much in debts. This is especially important during hard times because when money is tight debts start to seem too huge, and can be overwhelming. Pay them down as quickly as you possibly can. Savings: You will never get out of debt, stay out of debt, and be able to stick to a budget with any sort of luck if you do not have a fund for emergencies. Life happens, emergencies happen, tires need replacing, cars break down, people get sick or hurt, etc. plan for it by creating a savings account. Living expenses: This means food, fuel, utilities, etc. However, this is where it gets tricky. For example, you may find that paying for television service in your home saves you a significant amount of money each month because you go out far less often. However, do you really need NFL ticket? Do you need 450 channels? So, start with basic expenses, like groceries, and then depending on your income add a few fun things to your budget. This makes tough times more bearable without making you feel too much like you are scraping by. Second, your budgeting tactic should be pay yourself first, your bills second, and everything else third. This is a great tactic because it means you will always have money to contribute to your emergency fund. If you do not already have an emergency fund, start one - right away. This is going to give you peace of mind, and it is going to help keep you out of debt. So, get at least 3 months worth of money to cover expenses saved, and work toward having 6-12 months. When times are tough, this is an exceptional thing to have. For example, if you were to lose your job, you would have 3-6 months worth of money to cover bills and basic expenses while you searched for a new one. Once you set money aside for savings, pay your bills. Obviously you need to create a budget that allows for enough money to be left for the bills, but this concept has a bit of a round about affect. If you save this much, and only have that much left over, you won't incur bills that exceed that much. In other words, if you know you only have $900 left for bills, you aren't going to go get new debts that might put you over that $900. So, in a way, paying yourself first means you will be more frugal and get into less debt. Third, use the extra money after your savings and bills are paid for the extra things in your life such as entertainment, clothing, eating out, etc. Of course you will have to buy food, and fuel, but you will be far more frugal if you literally can't exceed a certain amount. So, here is an example: You get paid $1500 a paycheck, and you get 2 paychecks a month. You decide to pay yourself 10%, which is $150 a paycheck, or $300 a month. You then have monthly bills of $1750, this includes phone, insurance, vehicle, somewhere to live, etc. this means that you have $950 a month that can be spend on gas, groceries, movies, clothing, etc. If you have a month where something comes up, like you need to register your vehicle, and it costs $200, you then know you only have $750 that month for variable expenses. This concept helps people to have better control over the variable expenses in their life. It is very possible for a family of four to spend a thousand dollars a month on groceries. It is also very possible for them to spend enormous amounts eating out, seeing movies, going to events, etc. When times are tough, this is the area that needs to be controlled the most. Obviously it is important to keep the amount spend on bills as low as possible by avoiding debts, but it is the extra spending that often makes or breaks people financially. So, get in the habit of only buying things you have money already in the bank for, and save and pay bills first, so that the money you have in the bank is not already allocated to something like your mortgage. Third, keep yourself aware of where you are at. If you want to do well financially, especially during hard times, it is smart to review your finances at least weekly. When times are hard it is easy to lose control of your finances because you succumb to debt and other temptations. However, if you review your finances weekly you will get a sense of control over your finances, and always know how much you have, where it is coming from, and where it needs to go. Most people do not write checks as much anymore, but be sure to balance your checkbook each week, and watch your bank account to ensure checks are going through and that you do not think you have more money available to you than you actually do. This weekly review is like your financial dashboard, you will catch any problems, know where you need to cut back, and make sure you are not overspending. If you do this once a week you will only need to spend about 20 minutes on it. 20 minutes will go a long way in helping you make it through tough times in one financial piece. So, look at your budget, your expenses, your income, and make sure you've got everything under control. Be sure to include anyone who has control over your money. If you share accounts with your spouse, it is vital to your relationship, especially during hard times that may already mean higher stress levels, that you discuss finances regularly. It can be very damaging to a relationship to have one member scrimping and saving, and the other spending recklessly. So, talk about spending habits, goals, financial goals, and the things that both of you can do better in order to help you get there. For example, she may need to make better use of her existing clothing, and he may need to cut out going out for lunch at work. However, unless you learn to talk about it, it is very hard to keep control of your finances. Share the responsibility, and keep each other well informed. These are just three budgeting tactics, but if followed, hard times will not seem as hard, and you will come out of them better off instead of further in debt, and feeling even more overwhelmed with financial burdens. Other budgeting tactics that work well for some is to have a weekly budget instead of a monthly, that way if they get off course they are not as far behind, and they can start fresh. One is to use cash. This makes it impossible to overspend, but without careful planning can leave you eating next to nothing at the end of each month. Find the tactics that fit your personality best, but no matter what you do, apply the three budgeting principles listed above for better financial health.
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