There are various budget tips to be found online and you need to filter them out to find the perfect techniques to make budgeting work for you. We have gone past defending why you need a budget your life. Now, the issue is how you can make sure that your budget will serve its purpose – which is basically helping you live within your means and making sure your priority expenses are all paid off.
How to prioritize on your budget plan
The real challenge in creating a budget plan is this: how can you make sure that your priority expenses are all taken cared of when you are restricted by a limited income? That is very important and you should consider all your options carefully.
Life is very unpredictable and you should always keep that in mind when you are making or reviewing your budget plan. While our priorities will vary depending on your financial and personal goals, here are some suggestions on what you can make as the most important in your budget.
Savings. This is always important. Shave off what you want to save on top of your net income. If you get it out of the way immediately, it is easier to pretend that it wasn’t there in the first place. The idea is, you will not miss it if you don’t know that it’s there in the first place. Make sure you save up for the following:
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Emergency fund – this is for any unexpected situation that you did not prepare for.
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Maintenance/replacement fund (house, car, appliances) – your possessions wear over time and you need to have the money to spend when they need to be checked or replaced.
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Retirement fund – save for your future self and make sure you grow the funds that you can spend when retirement comes.
Fixed expenses. This includes monthly bills that have a fixed amount. Here are sample bills that you should finance first:
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Home/rental costs
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Utility bills
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Insurance premiums
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Subscriptions (cable, Internet, phone)
Debt payments. This is next on your list. You want to list your debt payments and make sure that you can commit to all of them. There are various types of debts and here is our suggested ranking:
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Secured loans. Any debt that you may have that has a collateral must be prioritized lest you endanger that asset to be taken by the lender.
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Credit card debt. We are putting this second on the list because it usually has a high interest rate.
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Unsecured loans. This includes personal loans, medical bills and other types of loan.
Variable expenses. These are the expenses that changes over time. If you have to cut back on anything, this is one of the places where you can start. Here are sample expenses included in this category:
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Food and groceries
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Gas and transportation
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Clothing and shoes
Entertainment expenses. Last on the list are the expenses that you usually make to have fun. It includes:
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Eating out
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Going to the movies
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Memberships (gym, etc)
When you are prioritizing your expenses, you want to make sure that you are prepared for any instance that can put you in debt in the future. For instance, if there is a common sickness in the family, you may want to prepare for that by including it in your budget. Or it can be that age when most of your friends will start getting married and you need to spend on wedding dresses and gifts. It can be plans to have kids or putting your child to a good school. You need to think about these things and consider how you can incorporate them in your budget so you can save for them early.
While this may seem like you have so much on your savings, you need to realize that you can opt to put in a small amount each time. A small saving contribution can grow over time – the important issue here is to have something to spend when the situation arises.
It helps if you can put aside a small amount for your investment plans. This is one way to help grow your income so you have something to rely on when crunch time comes. Visit Investor.gov to find out how you can invest your money – no matter how small your capital may be.
Tips when budgeting on a limited income
The challenge in your budget is when you have a limited income. We all have the option to live a frugal lifestyle but not everyone can keep up with it. For some, it can be very painful to follow. Here are some tips that you can follow when you have a limited income and a restrictive budget.
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Know your life goals and base your budget priorities there. We have just discussed how you can prioritize your budget. When your budget is aligned to your life goals, it will be easier for you to follow it because you know it leads you to where you want to be in the future. You need to determine your priorities based on your plans for the future. For instance, if you want to put up a business, you need to save up for that. The same is true for buying a home. If being debt free is important to you, put that high in your priority. If you cannot live without having fun, make sure your budget includes that.
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Never make excuses to justify wants for needs. If you have a limited budget, that means you can only afford to spend so much. There are many ways to lower your standard of living to accommodate your income. If you have to move into a smaller home, do that. You will save on rent and utilities too. If you have to give up one car or trade in your expensive car, that is something that you can do. If it is more economical to commute and it will not kill you to do so, that is one convenience you may want to give up.
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Increase your income. Since your budget is being restricted by a limited income, you may want to increase your cash inflow to be able to afford more payments. There are several ways to earn and you should not make excuses like you do not have the time or you’re too old to do something. There are online jobs that are not too physical for you to accomplish. You can also use your hobby to earn a few extra. Bake cookies and sell them to friends and neighbors. Use your imagination and be open minded about it. You will find a great source of income soon.