Maintaining A Personal Budget

Maintaining a personal budget is as much and art form as it is an exercise in discipline.  Why maintaining a personal budget is so difficult for most is because it’s new turf.  If you’ve had struggles with personal finances, relax.  Know that you’re not alone, either.  The 2014 average household debt was $225,00 in the US, with  76% of Americans living paycheck to paycheck.  Given the interest rate alone on many of the credit cards, or other “products”, such as home equity lines of credit (HELOC), chances are much of what an indebted person is making every month is simply going to servicing this debt in the form of minimum payments and not actually making a dent on the actual debt itself.  Listed below are options to consider on how you can reduce your debtload as well as path forward on creating and maintaining a personal budget.  Believe me when I say I know how you feel.  A few short years ago I was buried in debt.  Still, through the intstituting of strong financial habits and maintaining a personal budget with discipline, I’ve been able to return to the black and even allow for investing for retirement and other life events.  If you employ a similar strategy, I promise you can find your way back out of the financial abyss.

Maintaining A Personal Budget Strategy #1: Taking Stock

Do you know how much you owe?  Do you know it to the penny?  Do you know how much interest you pay?  Do you know how much your service fees from your financial intstitution are?  Do you know how much it costs to use a non-financial institution ATM?  If you don’t it’s time to start finding out.  The banks have a vested interest in keeping you indebted.  Your debt is their profit, plain and simple.  The fact that they charge “service fees” at a very progressive rate leaves a poor taste in my mouth and should so for you as well.  Most of these services are now automated, remoing the cost for human employees and increasing the number of transactions a bank can complete each day.  In other words, your bank is charging you more for doing less.  What kind of plan are you on with your bank?  Does it allow for unlimited tranactions each month, or are you being charged adollar (if not more) for each purchase you make.  Think about it, if you buy a cheap lunch at a fast food place, you may wind up paying twenty percent more for it just because of the service fee your bank charges,  Know that you have the best options available from your financial institution to suit your lifestyle and if not, change them over.  Maintaining a personal budget means having something that works within the confines of who you are as a person, even if it means you are going to have to cut back on spending.

Maintaining a Personal Budget

Maintaining A Personal Budget Strategy #2: Isolating Your Areas of Risk

Maintaining a personal budget is not simply about cutting back, it’s about understanding how you are spending in the first place and why.  Take a look at your previuos month’s spending.  If you haven’t a way to track this, download a personal spending tracker from the Apple or Google Play store.  These applications are usually free and you shouldn’t spend any more money you don’t have on them.  Try a few, find the one that is easiest, works best for you.  I downloaded three initially, until I found the one that tracked everything I wanted the easiest, then simply deleted the others.  Once you’ve installed the program, you need to immediately create categories for your spending.  Be somewhat specific.  Some spending may overlap into more than one category.  My advice is to pick one and track those type of expenses all under the single category,  If you haven’t tracked your spending before, you should have a good idea of where your money is going every month.  You should also be able to easily identify where your areas of risk for maintaing a personal budget reside.  Where are your expenses too much or too often?  My suggestion is to take one of those costs and cut in half.  If it’s dining out, cut it in half?  Either you go out half as often, or you spend hald as much while you’re out.  I know you’re probably thinking “I deserve it, I work hard”.  I’m not going to debate that logic.  Everybody deserves a treat once in a while, though most often it is self-indulgent behaviour that gets people into debt in the first place.  Perhaps you own two new cars that are financed.  Maybe you’ll have to sell one to cut your bill in half.  Maybe it’s dropped in value, perhaps it’ll mean selling both new cars to break even.  My advice is to do so and then buy an older, economical car that has been well taken care of.  Automobiles are a depreciating asset.  Clever marketing has people spending hard-earned money on luxuries masked as necessities.  My car is fifteen years old.  I’ll probably replace in the next few years, though when I do, I’ll have the money saved to buy a low mileage leaseback and pay cash for it.  Still, why replace it until the maintenance costs and reliability outweight the cost of purchasing a new car?  Don’t bother leasing a car unless you own a business and can receive the write-off.  Otherwise, you end up paying twice as much for a car that’ll be worth a third of what you paid five years later.

 

Maintaining A Personal Budget Strategy #3:  Replacing Bad Habits With Good Ones

Where maintaining a personal budget will often fail is the risk of reversion.  If you believe you have a behaviour or a past time that will often see you spend money that you truly cannot afford to, then you need to substitute it for a new activity or cost-free version of the activity.  If you simply focus on not doing something, ultimately that will lead your line of thought to focus on the difficulty of  not doing that thing.  The only reliable way to stop that habit and find that you are still maintaining a personal budget is to switch it out.  You would be surprised how much easier it is to change behavior, rather than stop behavior altogether.  Once you’ve adopted this technique with success once, try it on any activities that regularly cost you money that could be considered a luxury.

Maintaining A Personal Budget Strategy #4: Setting Your Budget

When it comes to maintaining a personal budget, the parameters set are going to be different for everybody, depending on age, income, personal debt load and long term financial goals.  Before you even start, realize one thing; your goals are your own and you shouldn’t be comparing them to anyone else’s performance.  It’s not a competition.  The point of maintaining a personal budget is to get an understanding of how you spend money (and save it) to ultimately allow it to work for you.  If  you can learn to leverage money in your favour, life becomes substantially easier.  It allows you freedom to make choices that you want to, rather than choices you are forced to make, due to financial limitations.  When my goal was to pay off debt, I originally had a budget that had 40% of my personal after tax income going to paying off debt.  Let me be the first to say, this was aggressive and it won’t be for everybody.  It also wasn’t fun.  For over a year, I limited myself to 80 dollars a week in personal spending money.  This basically meant maintaining a personal budget where I had one night a week I could eat dinner out at a nice restaurant, or go somewhere a little more conservative and then buy something small.  I found I needed to reallocate the extra time I had to more productive, cost-free activities.  I can tell you that my used book collection grew dramatically over this period.  I also invested more time in physical fitness.  I did so spending very little money.  I also found that eating better did cost less as well.  That said, I don’t spend a lot of money on expensive nutritional supplements that many others do.  In my limited experience, many of the supplements have benefits, though given my personal lifetsyle, I do not feel these are a requisite.  Simply eating healthy improved my energy, mood and overall well being.  Doing so allowed me to focus on other areas of my life which required improvement as well.

At the end of the day, what you have to keep in mind is your direction for the long term.  If you have clearly defined goals, you will be able to measure your performance on a regular basis, this is the key to maintaining a personal budget over a lengthy period of time.  Once these goals have developed into daily practice, it is simply a matter of time until those goals are realized.

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