To share a quick story before the tutorial for budgeting for dummies: My finance teacher once told me, financial budgeting is all about discipline. It’s just like working out, 80% of the time, who do you see jogging around the neighborhood? The fit ones or the unfit people? That’s a good point, I often see the fit athletic people running so hard as though they were in some marathon. In the finance budgeting world it is the same, those whom keep a tab on their spending are often times pretty well off.
Tip One: budgeting for dummies: Pay yourself first
You have probably heard this one from Suzie Orman before. In general you want to pay yourself 10% of your income. This should happen as soon as you get your paycheck, sit down and write 10% to yourself.
Tip Two: How to establish an emergency fund
It is important to have an emergency fund for 3-6 months of living expense. If you don’t have one, before you buy that new flat screen TV or new furniture, think about it again. Especially in recession times like today, to only spend money on necessary items is your top priority.
Tip Three: Scrap the Credit Card
It is easy to get caught away with using credit cards. Leave your credit card at home and bring cash. This will help you realize how much you are spending and also eliminate your credit card debt. Credit card debt is DANGEROUS. My finance teacher once gave an example of how a college kid would buy his pizzas on credit card, and then next thing you knew, he had a $4880 bill after graduation and didn’t even have a job lined up yet. Now is it really worth it to have all that credit card debt, for pizza?
Tip Four: budgeting for dummies: Your spending plan, spend no more than 10-15% on your credit card payments, including car payments. Sit down and calculate how much is 15% of your income. This is the upper limit you should not go over in credit card and car payments, if not your debt ratio will get high once rent and groceries are in there.
Negotiate with your car financing and see if you can lower your interest rate
A lot of times people forget they can ASK and negotiate for a better deal.
Tip Five: Plan ahead for large expenses
If you know you’ll have a large expense soon, start buckling up and saving months before. I know a friend whom would not dine out for two months before he went on vacation because he was saving up for his upcoming trip. The money he saved left over from his budget he would transfer to his travel fund. He had multiple bank accounts, one for living expense, one for savings and one for travelling and leisure expense. What a great idea!
Thinking of becoming financially free? Not having to live paycheck to paycheck? Learn the investment strategy of the rich and how they do it.
If you need help with a reliable and great personal budgeting software, I highly recommend the Money Tree Personal budgeting software, it's nearly free for what you get and it's 1000 times better than using an Excel sheet.
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