September 28, 2020
Our Managing Attorney, Matt Herron, had the opportunity to discuss his thoughts on financial distress due to the COVID P...Read More >
Everyone can benefit from living on a budget. Especially someone who is recently out of debt. These individuals feel added pressure to improve and maintain their financial health. In order for them to stay on the right track financially, they must fully understand what it takes to create, implement and maintain a personal budget.
Get started today, by following these best practices and keep your finances in order.
Best Budgeting Practices
Begin by writing down every single expense, including smaller purchases like gas and groceries. A visual budget of your spending every month is an incredibly powerful tool to make financial decisions.
The expenses listed should be reviewed to determine whether any expenses can be eliminated or reduced. Saying “goodbye” to items and services that you don’t need is a difficult task, but it must be done to create a proper budget. A good rule of thumb to follow is the 50/20/30 plan—50% of income goes to necessities, 20% to long-term savings, and 30% to individual lifestyle choices. In many cases if debt service is throwing off your 50/20/30 ratio, you should develop a plan to eliminate your debts.
It’s important the budget you create is realistic. You want to be able to stick to it. If you do, then you are less likely to make impulse decisions and unnecessary purchases. The most realistic way to stick to your budget is to think of it as a diet. If you decide to splurge one day in a certain area, you will need to make up for it in another area of the budget. The best strategy for consistent financial success is making lifestyle changes that are realistic and sustainable.
Think long-term when creating a budget. Putting money towards your retirement is essential for a healthy financial future. Contributing to a retirement plan is a great way to save because it has huge tax benefits making it essential to surviving in retirement.
Plan and simple debt depletes your resources and keeps you from saving. Savings is the whole reason you create a budget and the only way to build wealth. The more you save, the more you begin to earn interest rather than paying it. When you save think of it as creating a money machine that produces cash from interest, as compared to consumer spending that is an immediate reward with no long term value. Additionally, your credit score is never as important as saving because it never builds wealth. This can only get you further into debt.
As your lifestyle changes, so should your budget. You will need to make adjustments accordingly as your lifestyle evolves and your necessities change.
Overall, creating and following a well thought-out personal budget is key to maintaining your finances. After all, if you’re not measuring you are simply practicing. Once an individual understands how they are spending their money, they will be able to avoid wasting money in the future and have sustained financial health. The Debt Doctors are the bankruptcy lawyers that can assist you with this process and getting on the right track financially if debt is poisoning your ability to save and affecting your monthly budget.