If you do your budget correctly, you can achieve all your financial goals. Frugal living means spending less and saving more. It allows you to pay off all your debts in the least amount of time possible.
The first step to living a thrifty life is to create a financial plan for doing it. You need to spend at least an hour deliberating on your spending plan if you want to make it work. Before you sit down to figure out the plan, be sure that you have your monthly bills on the desk, total revenue, and a calculator. Now that you are ready, here are the steps to making an economical spending plan.
Determine Total Monthly Expenses
The first step is to list all of your monthly expenses. You can download a template online to make this process easier. You should itemize all your current expenditures–from your daily cup of coffee to your mortgage. That way, it is easier to determine which areas you can take out of your financial plan. It is important to include debt reduction in your monthly overhead. While you have already listed the minimum payments in the monthly expenditures, you should add in additional payments to your debts so that you can repay them sooner.
Get Rid of Non-Important Expenses
Frugal life means living with only what is important to your daily life. You should get rid of non-essential expenditures; some of these are dining out, shopping, and cable TV. It is important to know the difference between needs and wants. Remove unnecessary items if you want to achieve more savings. Things such as new shoes or gloves are not important when you still have a pair you can use.
Understand Your Exact Total Income
After listing your total monthly incidentals and getting rid of the unnecessary ones, you now need to compute your monthly revenue, after taxes. You should also include all the money you earn from your side projects, investments, and other profits.
Deduct Expenses from Income
To determine the effectiveness of your current expenditure, subtract your monthly outlays from your monthly revenue. The number shows you that how much money do you have left at the end of the current billing period. If the amount turns out to be negative, you need to rework your overhead. You need to look for areas in which you can make some cuts.
Include Investments and Savings
Your financial plan should also include savings. By living a thrifty life, you will have more leftover money each month. Instead of using it for entertainment or shopping, you should consider putting it into some type of investment or savings fund. You can put money into a savings account, 401(k), IRA, or stock and bonds. You could also save up for an emergency fund or a vacation. Economical living doesn’t mean you can’t enjoy life. Travelling is great in order to enrich your life experiences. However, if you have a lot of debt, then you should consider skipping this step and put all the extra money into repaying your debt quickly.
If you are still paying your student loan or other debts, then your financial plan should contain the least payment that is required to be paid every month. It is important that you repay all your loans as soon as possible so as to avoid paying expensive interest. Look at your expenses and find out what sacrifices you can make to repay all your debts.
Financial experts suggest consolidating all loans into one with a low interest. Some lenders offer low-interest direct loans for longer period, which are helpful when you have several debts with high-interest rates.
Test the Budget
Once you have finalized your plan, put it into a test. Try to live within the allowed finance limits you have set for a month and see if you are comfortable with it. It might be hard at first, but you will get used to it over time.
Every month or end of the money analysis the plan once. Look at the expenditures you actually made and compare it to your list. If the former exceeds the latter, you must stick to your financial plan. You might also need to modify it to reflect your actual incidental spending. An economical spending plan is never complete. You work on it repeatedly. At the end of each month, you should look at it in order to find areas where you tend to overspend. Keep on going until you get it right.
Tips on Making the Budget
In order for it to be effective, you should be honest about your outlays. There are instances in which you can’t really get rid of an item, and you tend to spend money on it, even if it is not on the list.
You should also remember to have an emergency fund for unexpected costs. You never know when you need extra money. That way, you can avoid taking out a new loan when you are still paying off your debt.
To avoid feeling deprived, you should look for free entertainment you can enjoy during your free time. All work and no play can destroy your motivation to stick to your plan. Instead of buying books, you can rent them from the library. You can also stream videos online instead of watching the latest movies.
Before buying anything, see if you can clean it up, wear it out, use it up, or do without. You should ask yourself if you can rent it, can borrow it, or even whether you really need it. You should also look around first to see if something you want is cheaper somewhere else.
When you go shopping for groceries, leave your credit card at home. Bring only the exact amount of cash you need to buy the necessities. Using a credit card when purchasing items make you feel that you are not using real money, even though you know that you are. The last thing you want to do is to buy your way out of an emergency, especially if it is a huge purchase such as an appliance or a car. Make sure you have enough time to do research and think about your purchase.
A good financial plan is always changing. You should make it flexible enough so that it can truly reflect your financial status. However, make sure you don’t add more overhead just because you managed to save a lot of money by living a frugal life.
Make sure that the financial plan you make is something you can follow. The perfect spending plan is something you made yourself that prioritizes your needs and sacrifices some of your wants.