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How to Effectively Manage Your Budget

Moneymagpie Team 6th Dec 2023 No Comments

Reading Time: 2 minutes

Having a budget is important when you’re creating financial goals like purchasing a house or saving up for retirement. A budget is also great for ensuring you have financial stability to pay for monthly bills, car payments, and insurance.

Set financial goals
Create a monthly plan
Cut back on unnecessary expenses
Only pay on credit what you can afford
Use the 50/20/30 budget rule

Whether you already have a budget or not, it can be challenging to know how much you should be putting aside each month or spending. Here are a few ways you can effectively manage your budget to better allocate your money.

Set financial goals

Setting financial goals is important to help you stay focused and motivated. Figure out what you’re trying to save for and how much money you need to put aside to reach your goals. There’s no right or wrong answer to your financial goals. The important think is to stay consistent and have a clear idea of how money factors into your short-term and long-term plans.

Create a monthly plan

Write down your revenues and expenditures each month to get a better understanding of where you’re earning and spending money. Next, determine how much you’re saving each month and whether you’re happy with this amount. Without a monthly plan, it can be easy to go over your budget and find yourself short on money.

Again, there’s no right or wrong answer to your plan. As long as you find a budgeting method that works for you and can stick with it, you’ll likely find yourself managing your money better.

Cut back on unnecessary expenses

It’s tempting to say yes to everything, but it’s not always financially wise. Take a look at your spending and identify ways you can cut out certain expenses from your monthly budget. Even removing small purchases can add up to large savings throughout the year.

Some expenses you might reconsider including getting takeout frequently, monthly subscriptions, memberships you don’t use, or unneeded insurance.

Only pay on credit what you can afford

If you have one or more credit cards, it’s important to only use it for purchases you already have the money to cover. Debt is a huge financial burden that not only affects your monthly budget but your future savings goals as well.

If you have large amounts of credit card debt, evaluate how you can use your accounts wisely and identify an appropriate debt repayment plan.

Use the 50/20/30 budget rule

The 50/20/30 budget rule indicates you should allocate 50% of your after-tax income to needs, 30% to the things you want, and 20% to savings. Typical items that are considered needs include rent payments, food, utilities, insurance, and car payments. Your wants are items that are nice to have, but not necessary for your life, such as social outings, nice diners, fancy clothing, and electronics.

You should be putting money into savings or investments each month to ensure you have money for larger financial goals, retirement, and emergency funds. Once you are in the habit of this budget rule, it can help you better manage your money.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.