This article is presented by Stacey Barbee
Do you know why you’re broke? It’s because you have never followed a budget that reflected your income.
Smart budgeting can help you avoid foreclosure, tackle credit card debt problems and inflate credit score. Don’t think that you can’t
create a budget just because you’re broke. There are lots of ways to follow a budget and achieve your financial goals when you’re living paycheck to paycheck. Here are a few of them.
1. Find out how bad is your financial situation: Figure out where you’re standing financially. It might seem overwhelming, but it’s vital. You can do this by following these steps.
1.Calculate your income: Find out how much you earn every week or month. Make sure you calculate your net income.
2.Review your expenses: Calculate your expenses in the last few months. Categorize them into your needs and wants.
3.Spot the problem areas: If you’re broke, then it means that you’re spending more than your income. Now, that you have calculated both your income and expenses, it would be easier for you to find out the problem areas. You can easily spot the areas where
2. Create a spending plan: Budgeting is all about creating a spending plan where to spend less and save more. You make a judicious use of your income. You can do this in 2 simple ways:
1.Take care of your needs: Create 2 priority lists. This first list will primarily consist of the things that you need for survival. Your priority list should contain food, mortgage, gas and utility bill.
The second priority list should contain cable tv, insurance, childcare, Internet, phone bill and credit card bill.
2.Ignore your wants: If you seriously want to change your situation, then stop eating at restaurants or buying branded items. Don’t spend money on the things that you can live without.
3. Chalk out a saving plan: One of the reasons behind creating a budget is to increase your savings. The more you save, the better for your current financial situation. You can increase your savings in the following ways:
1.Downsizing your lifestyle: Give up expensive cable plans and vacations. Move to a smaller apartment.
2.Negotiating with your creditor: Ask your creditor for a lower interest on your credit cards. A five-minute call can help you save thousands of dollars every year.
3.Eating at home: Cook meals at home and have dinners with family. Carry brown bag to your office.
4.Asking for a better payment plan: Ask your creditor to give you an affordable repayment plan since you’re cash-strapped.
5.Asking for a lower premium rate: Ask your insurer to charge a lower premium or else threaten to switch to another insurance company.
6.Buying generic drugs: Request your physician to prescribe generic drugs instead of brand-name drugs as they are less expensive. You can save hundred dollars on your drugs.
7.Refinancing: If your lender is threatening to foreclose your home, then refinancing is a good option for you. This would help you save thousands of dollars on your mortgage. In refinancing, you replace your existing loan with a new loan at a lower interest rate. You can take out the loan from the original lender or a new loan. Just check if the interest rate on the new loan is minimum 2% lower than your existing loan. Otherwise, you won’t benefit at all. The payment plan shouldn’t be too long or else you’ll end up paying more.
2 Budgeting mistakes you need to avoid
You have made a series of mistakes in the past.
You didn’t create a budget. You spent more than your earnings. Hence, you’re broke.
Please, don’t make these mistakes when creating a budget. Otherwise, your goal to get out of the financial crisis will remain as a dream.
1.Being too imaginative: Calculate the figures realistically and set aside an amount for your necessary expenses. Suppose, you plan to spend $25 on your meals every month. But for this, you need to take extreme measures. You may not be able to continue it in the long run. So, think practically.
2.Missing out the fun part: Being broke does not imply that you would have to remove the fun element from your life. You may have to restrict it to $25 a month when you’re following a shoestring budget. But, this additional amount can help you avoid feeling deprived, which can lead to overspending.
The amount you set aside for keeping the ‘fun element’ in your life will depend on your current financial situation. But it shouldn’t be too high. Or, else you would end up breaking your budget.
A tip to manage money when you’re broke
Try to increase your income for managing money efficiently. You can give interviews to get a better job. You can work hard to get a good performance appraisal and a hike from your employer. You can sell your unnecessary things or do a part-time job to escalate your income.
Extra-flow of cash will help you pay off your debts, save your home, and take care of your other expenses easily.
A few words of wisdom
Budgeting is probably the last thing on your mind when you’re broke. But, believe me when I say that this is the time when you need a budget desperately. A good budget can help to make your financial life less stressful and move beyond being broke. So, always remember budgeting is a necessity, but not a luxury.
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