Plan Your Budget

Setting realistic budgets, sensibly managing credit and debt, saving for the future and unexpected expenses, and investing are important life skills for everyone. Yet, the number of American foreclosures every year, credit card debt over US$969 billion, and total personal debt close to $21 trillion indicate that most adults don’t know how to manage their personal finances. They overspend, pay too much interest, and eventually fail to meet their obligations. This is why most people struggled financially during the covid-19 pandemic lockdown. For these reasons, it’s important for everyone to learn how to manage their finances, and it all starts with knowing your budget.

If you run out of money every month and wonder where your money is going, and you have to use a credit card to make it to the end of the month, it’s time to take control of your money. A budget is a plan that allocates income to every expense, debt, savings account and optional entertainment in your household. To make the budget work, everyone in your household must agree to it and spend according to it. This applies whether you are a high-income or a low-income household.

The importance of having a solid budget

A solid budget is important for your household because it:

  • Reveals any bad spending habits.
  • Forces you to live within your means, instead of using money that you don’t have through a credit card.
  • Reminds you to save. Budgeting is a good opportunity to set goals, save money, keep track of your progress, and achieve your dreams.
  • Makes you think seriously about debt and may prompt you to either work at a second job for a few months, create a way to supplement your income to pay off high interest debts fast in order to save money, or find a way to cut back on your expenses to increase your budget. With a solid budget, you will work your way out of debt.
  • Teaches your children to wait for the things they desire and to budget their allowances and earnings.
  • Helps you to prepare for emergencies like losing your job, being injured, unexpected auto or appliance repairs.
  • Ensures that you always have enough money for the things you need and the things that are important to you.
  • Enables you to make assumptions about your annual income and expenses and to plan for long-term financial goals like buying a home, investing, starting a business, etc.
  • Enables you to save for a financially healthy retirement.

How to create a solid budget

First of all, add all the household income for each month over the past 12 months. If you earn a salary, simply divide your annual salary by 12, and if you work on a commission basis, take the average of your total income over the past 12 months.  If you have any additional income from other sources on a fixed frequency, be sure to include that as well.

Next, you’ll need to account for all of your expenses over the past 12 months, and allocate the money to the following items, month by month:

Fixed expenses – these are expenses that occur regularly, are fixed monthly, and you cannot control. Examples are rent, mortgage payments, and car loan.

Credit card – If you owe money on your credit card, pay it off as fast as you can to reduce your interest payments.

Savings – Before allocating money to flexible and discretionary expenses, allocate some to your savings accounts. Set a target for every month and transfer the money before spending the rest.

Flexible expenses – These are expenses that occur regularly because they are necessary for day-to-day living. You can control the amount that you spend on each item by shopping around for best prices, by downgrading, or by buying in bulk. Examples are groceries, electricity, telephone, cable TV, internet access, and water.

Discretionary expenses – These are expenses that you choose to have but can do without. Examples are going to the movies, salon or spa, dining out, clothes, or having dinner with friends.

The key is to ultimately structure a budget where the income covers all expenses, including all the things you need and an optimal amount of the things you want, while being able to save and invest enough to meet your financial goals.  For more details on creating a budget plan, different techniques and ways to maximize your budget, download our FREE eGuide below.  We’ve also listed some great budgeting apps below to help you automate the process.

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Great Budgeting Apps

If you want to control your spending and your personal finances, a budgeting app will make the process of budgeting easier. There are many budgeting apps that are all designed for general personal budgeting, but each one offers unique features. So, depending on your preferences or needs, you can choose the one that’s best for you.

EveryDollar is designed for zero-based budgeting, a method in which your income equals your expenditure. It helps you to plan purchases and to track your spending. If you use the free version of the app, you enter your transactions by hand each time you spend money. If you use the premium version of the app, you can connect your bank accounts for a more automated experience, and you can also access financial advice and other tools. The premium version costs $129.99 per year after a14-day free trial.

PocketGuard is a free app that simplifies your budgeting by connecting your checking, saving, and loan accounts. It can detect recurring bills and income. Then it shows you how much money is available for day-to-day spending by subtracting your saving goals, upcoming bills, and pre-budgeted expenses from estimated income. The app automatically categorizes your expenses and, when needed, it can create custom categories and set limits for them. You can even export transactions to a spreadsheet and play around with the data. PocketGuard is the best app if you want to keep from overspending.

Mint is one of the oldest, best known, and free budget apps. It has a wide range of features, the best one being its budgeting tools. It offers a budget that you can tweak and customize to your needs. Then it tracks and manages your money from a long list of banks, credit card issuers, lenders, brokerages, and other financial institutions. It automatically categorizes your transactions from linked debit and credit cards. You can get alerts when upcoming payments are due, when you exceed your budget in a particular category, when you pay ATM fees, and if the app spots a large or suspicious transaction. The best feature is credit monitoring.

You Need a Budget or YNAB is another zero-based budgeting app. It guides you as you build your budget based on your income, and gives every dollar a role in your budget, including debt payment, expenses, and savings. Because it accounts for every dollar, it forces you to think about every dollar you earn and spend. It offers options to enter expenses manually or to sync your bank accounts automatically. Other features include setting goals, goal tracking that motivates you to reach your money goals, contribution to savings, and ability to customize spending categories. You also access resources such as free workshops, budgeting advice, and app user guides. For this, you subscribe for $84 per year or $11.99 a month after a 34-day free trial. Students get 12 months free.

Mission and Values

Many people are struggling to manage their personal finances and this often leads to affecting their credit as well. There are many ways to spend money, however, there are just as many ways to make money as well; but only if you’re aware of them. Our mission is to increase financial literacy while creating opportunities for financial growth. Whether you are looking to develop a solid budget plan, improve your credit profile or maximize your income, we offer resources and information to meet you where you are, and help you get to where you want to be. As a premier financial hub, we are dedicated to helping our subscribers spend less time worrying about how to fund their financial goals, and more time achieving them.

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