There is a lot of budgeting advice you will encounter when you start to actively look for ways to avoid debt this year. The deluge of different pieces of financial advice can make it a lot more challenging to choose which one to follow. The struggle is sticking to one which looks like it will work only to find out it can give you more problems in the end.
The desire to avoid debt this year could stem from the huge challenges of the past year. The pandemic forced many businesses to close shop leaving many Americans out of a job. This led to stimulus checks being sent out to help people with their finances. But did not stop people from getting in debt or relying mostly on credit for the past few months.
Though there were some bright spots from the events of last year. USA Today shares that about 48% of surveyed consumers cut down on their debt. You could have started to do this last year and are just looking for a way to improve even more. This is where quality budgeting advice should come in and help you with your goal.
Remember that once you come across a piece of advice promising great results for your finances, you always need to pause and think about it. You should always check if it is applicable in your present situation. The advice could be effective but only for specific situations. Here are some of the most common ones to consider.
Know your existing income & expenses
One of the most constant budgeting advice you will get is to make sure you have a clear understanding of your income and expenses. In other words, you should have a comprehensive household budget to work with. Do not start off with a very complicated budget template. The simpler it is, the easier it would be to stay on track.
As you go along, you can add and make improvements on your budgeting tool as you add more items. The important thing is to make sure you are able to list every single source of income you have as well as all your expenses. The income is quite easy especially when you rely only on one day job. But your expenses will require more work.
One thing you can do is to monitor your spending over a certain period of time. This is because apart from your recurring debt payments, you might have other expenses you might overlook. Buying lunch in the office, a dress, or a pair of shoes you need for getting back to work. Make sure you list everything down so you know where you can make adjustments when needed.
Identify financial goals for the year
Budgeting advice about staying away from debt should always include keeping your sights on your goal. This means that whatever strategy you have for the year, always keep your eyes on the ball. It is easy to get distracted in your daily life. The moment you wake up, a million thoughts are already running through your head and that is even before breakfast.
This is one of the reasons why it helps to write down your goals and put them in a place you can always see them. It can be your wallpaper for your smartphone or your computer. You could also write them down on a piece of paper and put them in your wallet. The idea is to always be reminded what your goals are so your daily actions will help push you closer towards achieving them.
Allocate your income accordingly
As soon as you start looking for budgeting advice to get out of debt, your income will play a big part in the process. If you want to navigate away from debt, you need to allocate and use your income properly. This needs to be done just right because if you overpay on some debt accounts, you might not have enough funds for other financial obligations. Choosing to save a good portion of your income could also be detrimental when you miss some debt payments.
This is the reason why you need to know how to properly allocate your income across all your financial obligations and goals. Having a budget will help you have an idea of what you need to pay for every month. Setting your sights on your goals will remind you what you need to save for in the future. In both of these, you need discipline and determination to see things through.
Learn from the lessons of 2020
There is no question that the past year is one of the toughest in recent memory. BusinessWire even shares that because of the health crisis, more than half of their survey revealed people choosing health wellness as their focus this year more than financial stability. This is most likely in response to trying and beating the virus or being able to recover if they do get sick.
This is just one perfect example of people learning their lesson and re-adjusting their focus for the coming year. One takeaway when you are coming off a very challenging time in your life is learning. Use these experiences and use them to make better decisions in the present to help you create a better future.
Importance of budgeting
If at this point you are still undecided whether you need to budget better for the year, here are some points to consider.
To keep you in control of your finances
Any type of budgeting advice is meant to help you stay on top of your finances. It is either you are in control or you are just reacting to what your finances throw at you. If you are able to budget your money, you are controlling how you spend and allocate your income across all your payments and savings accounts. Being in control is actively managing your funds and not passively reacting to what comes your way.
To increase your savings
More than just paying for debt and loan items, being in control of your finances means you get to save money for future use as well. You could be saving money to retire as early as you can and start traveling the world. It could also be to pay for your house in record time. You could also be saving money for your children’s college fund. Whatever financial goal you have in the future, taking control of your budget can help you
To prepare you for any crisis
Budgeting better can also help you prepare for emergency situations that might surprise you in the future. Budgeting gives you the chance to set money aside for a rainy day fund. With this, it will be a lot easier to navigate through emergency situations. It can be small ones like an immediate replacement of a car part or even more serious ones like needing a medical procedure or even losing your job. With anything, you need to develop the habit of saving for emergencies first. When you have that set, it will be easier to save for it in the future.
There is a lot of budgeting advice you will come across as you try and avoid debt for this year. The idea is to choose the one that works for you in consideration of your current financial situation.