Why Do You Need an Emergency Fund?
- Job loss or unemployment
- Medical or dental bills
- Home repairs
Budget: It’s the word we love to hate. Most of us understand the importance of keeping a budget, but for a variety of reasons still haven’t found the time or energy to actually implement one. The purpose of a budget isn’t to create a complex and lengthy document, it’s to help control spending and maximize savings to ensure financial security. Keep in mind, there isn’t a one-size-fits-all budget; each individual and family is unique, and their budgets should be equally unique.
Get started on your budget by following these four guidelines.
It doesn’t matter if you’re new to budgeting because all budgets start with knowing how much money you earn as opposed to how much money you spend. All budgets are designed for the same reason: so you can live within your means on a month-to-month basis. Think of budgeting this way – if you spend more than you earn, you may end up in debt, or have to dip into your savings. Spend less than your income and you get to save money. Put a few months of savings together as a result of your budgeting efforts, and you may end up with a little extra cash.
Once you have a better understanding of how your income stacks up to your expenses, it’s time to establish your budget. One simple method is called “zero-based budgeting” in which every dollar earned and spent is tracked for an entire month. Add up all your expenses including your rent or mortgage, food, cell phone bill, cable and internet, and compare them with your income for the month. The goal of the “zero-based budget” is to have zero dollars left over. Keep in mind that the purpose of creating any budget is to help you reach your financial goals.
At first, making savings a priority may be the most difficult part of budgeting. However, it will also make the biggest difference down the road. A simple habit of putting away money before spending ensures you won’t spend more than you earn, and allows you to contribute to retirement funds, rainy day funds, future vacations, car purchases and a variety of other things. When you are ready to start saving, you should consider an online bank such as Discover Bank. Online banks may allow you to save more with competitive rates because their overhead expenses are much lower. It’s also a good idea to consider a bank that offers a variety of products including savings, certificates of deposit (CDs), and money market accounts so you spend less time managing your money because it’s all in one place.
Your budget isn’t going to be perfect. Unexpected expenses and emergencies happen to all of us, more frequently than we’d like. So don’t be unrealistic with your expectations. Understand that changes in your budget will happen, and they’ll happen frequently. The important thing is that you remain flexible and maintain your “zero-based budget”. For example, let’s say your car is having problems and you need to take it to the mechanic; you may need to cut back on your recreational expenses in order to cover the repairs.
This isn’t an exhaustive budgeting list, but it’s a good starting point. Remember that your budget is unique to you, so do what works best for you and your family. The most important thing is that you implement the budget; you won’t regret it.
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