Rich or poor, every person in this world faces some or other kind of financial situations that have the potential to destroy their future life savings if not tackled. The most common of them is: spending more than earning. Every time a person realizes this, the person tries to resolve the debt by creating an expenditure plan to avoid the same situation. In most of the cases, these resolves never take any form, and the degree of the financial stress keep on increasing.
With growing consumerism these situations are becoming more frequent than ever. If not tackled, it can lead a whole population into a severe financial crisis in the future. However, with simple disciplinary steps, like making a budget and acting according to it, this situation can be avoided.
Here is a list of 5 financial situations (with budget tips) indicating the need for a new approach to tackle your personal finance:
You Save “Whatever Is Left”: You find yourself with little or no money left before your every payday which is called living paycheck to paycheck. This is a case especially with the young people. Instant gratification mantras like ‘you live only once’ and increasing consumer mindset are only turning them into fools that eat up their own savings. This can put them in serious trouble if any emergency expense arises.
Budget Tip: While reworking on your monthly budget, find a place or two where you can cut back on your expenses to add some extra money to your savings.
Frequently Using Credit Card: Every time you see an advertisement about some new and cool gadget or a new play station you get tempted to buy it. That’s your ‘buying impulse’ that makes you pay for the gadget through your credit card. Frequently using your credit card ends up only increasing your interest liability, and hurting your credit score.
Budget Tip: Assign 20 to 30 percent of your credit limit for credit card expenses in your monthly budget. This can be achieved if you use your card as a last resort.
Your Debt Is Not Shrinking: You think you’ll pay some part of your debt the next month but that next month never comes, and your debt amount only increases with every month unpaid. There can be only two reasons for your debt pile up: first, you’re paying less or not paying your debt, and second, you keep taking more debt. In any case, your debt amount will keep piling up.
Budget Tip: Re-start on your monthly budget and set aside a certain percentage of your income for debt paying. First payment should be your debt payment on your payday.
Spending Too Much on One Category: If you’re spending too much on one category such as family outing, without compromising the expense on other categories like food, housing, transportation, etc., it will end up raising your overall expense in a particular period. That over expenditure is itself a sign that you need to do a fresh work on your budget.
Budget Tip: Straighten up your monthly budget by giving each category a specific percentage and try to make up the overall expense every time you spend too much on one category.
Short-Sightedness on Annual Expenses: People get muddled into their monthly expenses so much that they forget to take care of their annual or long term expenses, such as car insurance, dentist visit, pet shots, or birthdays. This forces them to take out money from their emergency fund, leaving them with no savings for any unforeseen life event.
Budget Tip: You can create “cheat sheets” while working on your new budget and list on them the annual expenses and the months they are due.
You can start saving by planning your budget. You’ll need to plan it on a monthly basis as every month comes with its unique set of financial challenges. Don’t panic! It’s very easy. Just categorize your spending into, what can be called as, planned and unplanned expenditure. Give each category a specific percentage and try not to exceed the limit throughout the month. With months passing, you’ll grow smarter in handling your finance.