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Four Simple Steps to Save Money and Get Your Finances Back on Track

Updated on March 22, 2014

If there is the most important life lesson each consumer must learn, it will be on how to devise a personal budget and start saving money. The sooner a person learns this lesson, the greater the financial rewards the individual will surely receive, and the lesser the chances are the person going into bad financial debt.

If you are already badly in debt, your goal would be to avoid bankruptcy, debt collection agencies and lawsuits somewhere down the road. Before you reach that point of life, how could you get your finances back on track ? Well, just follow these four easy steps. Follow the steps for 6 months to a year. Stick to it, do it right, and you will see a life-changing results.

Step 1 : Work out your minimum income

Calculate the absolute bare minimum income you get from your pay, and any other income such as investment, family payments etc. Your budgeting should be based on this minimum income where you will learn to thrive and survive in worst-case scenarios. When you count income from an investment property, avoid using the gross amount which your tenants pay you, use a smaller amount that is averaged over a year, anticipating the expenses such cleaning and maintenance, and at least one month of vacancy.

With the aim of calculating the bare minimum income, any extra income such as extra job income, any overtime pay, travelling or shift allowance, cash bonuses, or full occupancy rates are helpful to pay off existing debts faster. If you still have extra cash, you can save for your financial goals such as a holiday trip, a bigger house and so on. Paying off the debt should be the higher priority than saving for your goals, though you can choose to do both at the same time if you do it with discipline and responsibility.

Tips to control expenses : Write down your expenses daily, and review it weekly and monthly to understand where all your money goes. It is a very effective way to improve and better manage your expenses.

Step 2 : Calculate your expenses

Calculate your living expenses with the objective of coping with them. Here is the recipe on how to estimate your spending so as to achieve a reasonable personal finance control:

1) Make a list of your expenses, set the priorities and check it several times.

2) Calculate the amount of your pocket expenses that cost roughly the same amount, like rent, utility and phone bills, mortgage payments, insurance payments, fuel, groceries, and lunches at school or work.

3) Add up all these expenses for a year, and divide the sum by the number of income payments you receive each year, and work out how much you need to put into a bill-savings account every month. You can also put this money into your highest-interest charging account such as overdraft, credit-card account, mortgage offset account, and lower your interest charges until the due date of the bill approaches and you have to pay for it.

4) Set aside about one to five percent of your income for unpredictable surprises such as tax payment, bank charges, dating expenses, increased in family members, medical expenses and increase of inflation.

Step 3 : Cancel or reduce any unworthy expenses

From your expenses list created in step 2, cancel or reduce any expenditure that are now obviously unworthy in time, money or quality. If you think that you are too busy working and do not spend much time watching paid TV, cut the subscription off. The other list of expenses you can consider cutting of are:

1) TV or movie subscriptions

2) Magazine or newspaper subscriptions

3) Expensive Take away food

4) Eating Out (Eating out has been the biggest needless expense most families have.)

5) Cigarettes

6) Alcoholic beverages (often the biggest culprit for drinker)

7) Heating or air-conditioning

8) Club membership subscription

9) Long distance phone calls (use Skypes and emails, instead)

10) adopt a low maintenance hairstyle (or find a cheaper hairstylist)

11) weekly manicures or massage

12) mobile phone calls (if you can’t live with it, reduce the calls, or use text messaging)

After making a conscious decision based on a balance of your needs and wants, it is perfectly fine to continue with some of these expenses if you can afford them. It is not acceptable if they are the expenses you leave dragging on because you are too lazy to do anything about them.

Step 4 : Calculate the left over income to pay off existing debts

After you have worked out the amount of the income coming in and expenses going out, you can calculate the left over from your income. Your top priority should be using this extra money to pay off existing debts if you are badly in debt. If you can afford it, you can plan your left-over savings for your debt repayment, savings for lifestyle improvement and a sanity allowance.

You should consider prioritizing your debts to pay off. Start with the bills that come with the highest late-payments charges, such as credit card bills, overdraft and personal loan, followed by the bills without any charges.

Aim to reduce the total number of debts, letting the fees and freedom from stress to guide you. For instance, for people who have high-interest credit cards debts but owe a few hundred dollars to your local businesses and friends, paying a little bit of everyone’s account is the answer to financial stress reduction. For others, greater stress freedom can be achieved by paying the smaller loan in two payments, so that they can focus on reducing their larger debts, even if this means paying an extra $20 or so in interest in the short term.

Setting up an automatic repayments so that a portion of your income is automatically deducted for your loan payment as soon as you receive it.

Any coins left in your pocket should go into your piggy bank. Remember that with the interest incurred, an extra $10 can save you up to $96 over the term of your loan.

Final Tip

Keeping a small booklet in your pocket where you can tick off your income, expenses and savings daily will help you to keep track of your financial planning, and help you to take better control of your expenses.

Wisdom Quotes on Personal Budgetting

A low budget is uncomfortable.
~ Lukas Haas

Any sensible family has a budget that lays out how much will be spent for household and other purposes. Without such planning, things would quickly go awry.
~ Walter Ulbricht

As I have traveled throughout my Congressional district, the one thing I heard loud and clear was simply please stop spending money you do not have, rein in spending, live within a budget.
~ Tim Scott

A budget tells us what we can't afford, but it doesn't keep us from buying it.
~ William Feather


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© Ingenira


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