Build and Stick to Your Budget
Nobody wants to be in debt. Sure, on occasion, debt can be necessary for your future. Mortgages and car loans are examples that are relatively low interest and often necessary for those who don’t have a large sum of money lying around. But what about the other types of debt?
High interest debt is money owed at a significantly higher interest rate than those loans mentioned above. This can take the form of credit cards, payday loans, etc. This particular type of debt is extremely costly and should be avoided whenever possible. A key part of avoiding that debt comes from building a budget.
High interest debt tends to accumulate through a mismanagement of finances or an unforeseen emergency. In the former case, it is generally a slow accumulation of small transactions, or simply spending more than you can afford. It is easy to charge $20 purchases to a credit card in hopes that you can pay it off easily at a later date.
A budget helps ensure you avoid doing this. Using your take-home income and subtracting necessary expenses, you will be left with your discretionary income. It is important not to exceed this figure.
If you allot yourself $100 a week, then $100 a week is all you spend. You’ve already done the math and determined no more was acceptable, so you stick to it. Make sure not to use overly optimistic figures, either. Use your current salary, not an expected raise. Assume the worst on your utility bills. This will ensure your budget is accurate and reliable.
Start To Keep Track
A budget can also focus you on your smaller purchases. Once you have a set amount of spending money, you will tend to watch it more closely. Small purchases add up. A $5 Starbucks Frappuccino before work every day comes out to about $100 a month. Switching to a 35-cent K-cup could save $1,209 a year. Keep track of little items and see if comparable ones are available at a lower price.
What if the debt has already been incurred? While you cannot change the spending of the past, you can make changes to your debt to improve your future. Credit cards can be consolidated into one larger personal loan, typically with a much lower interest rate. This will make payments more manageable and help pay down the principal balance.
Continuing to make the right first steps, such as budgeting, can greatly improve your financial future in the long run.