The average household spends thousands of dollars each year on things that they surely don’t need. Why? Because nobody taught them how to budget. We all get money, but what do we do with it?
Unfortunately, many Americans spend their money frivolously, not taking into account how much is left over at the end of the month. This can lead to getting too deep in debt or spending so little that one can’t achieve their financial goals. It’s imperative to learn how you should be spending your money and how much you truly need before you go out and get yourself another car, an entertainment system for your basement, or a new wardrobe when what you have already works perfectly fine. Here are key steps to take when learning how to budget.
Use your monthly income to determine how much you should be spending in certain categories. To do this, add up all of the money that comes in each month after taxes are taken out. Things like alimony or child support payments should not be included since they are usually fixed amounts. Then, divide the amount by 31 days – this gives you your average monthly income. Subtract your fixed expenses from this figure (rent/mortgage payment, car loan payment, etc.) and then subtract any other debts (credit card debt, student loans). Whatever’s left is what you can work with; it is important that people trying to learn about budgeting realize that at times there may not enough money for groceries every week, but the person’s needs are still being met, if not stretched.
Most people rely on their credit cards to buy things that they cannot afford at the time. This is a sure way of getting yourself into debt and hurting your credit score – something no one can afford! It can take months or years for some people to pay off the money they owe on their credit cards because most times they do not have enough money left over each month after paying for necessities. Instead of buying everything with plastic it is important that you learn how to save up cash in order to make certain purchases. Credit card debt should never be an option for anyone who wishes to manage his or her finances well.
