We’ve been dwelling on credit cards for several posts now. So many financial planners and personal finance authors classify credit card usage as potential financial disaster. Credit cards are also, often times, the most expensive way to pay for something! In this post, I’ll present an introduction to budgeting and goal setting – powerful tools to help you avoid overusing your credit card. These guidelines can also help you get a grip on your financial situation. Most of the information in this post is taken from Peter and Jennifer Sander’s book, “Living on a Budget”.
Budgeting, if done well, can be your KEY to financial security. It can help you achieve your financial goals like a professional. Budgeting requires incredible discipline and wisdom; this shouldn’t be frightening. This should be encouraging! Budgeting and goal setting will, in effect, help you sharpen your character AND your financial stability. It has helped me (goal setting, in particular) pay off a good chunk of student debt, pre-pay a European vacation, invest well and build a satisfactory retirement fund, for my age at least. It’s even helped me achieve the little things, like paying for all my family’s Christmas gifts by June so that I don’t feel the pinch in December.
First, you need to keep a close eye on your income and your expenses. I suggest tracking how you spend for 1 month. Personally, I record everything I buy/ spend money on in my planner. Some of you might think this is archaic. No, I don’t use an electronic calendar. Physically crossing off my to-do’s in my calendar is a simple joy in my life! You can adopt any system you’d like. If you want to write all your expenses on napkins and file them away in a shoe box, be my guest. Just make it so that you can go back to your files once the month is over, and total the amount.
You may consider splitting your expenses into categories: food, clothing, room/board, utilities, monthly debt and entertainment, for example. Categorize your expenses, total them, and analyze. Allot yourself a realistic budget for each category. As a rule of thumb, rent/ mortgage payments should not exceed 30% of your take-home pay.
The tracking tool is powerful because it can really make you aware of where your spending pitfalls lie and where you can better discipline yourself.
No more information in this article. I don’t’ like overwhelmed readers. I hope you start tracking your expenses today and we can expand on the next steps in the coming week!
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