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5 Important Tips for Effective Budgeting

One of the first steps to addressing your financial problems is to recognise exactly how much trouble you are in financially. Many people in financial trouble have very disorganised financial lives and have no idea what their monthly income and expenses are. This comes down to the problem of financial management, of which the most important tool is budgeting. Poor financial management and a failure to budget is one of the main reasons that people find themselves in financial trouble in the first place.

Budgeting is a simple and effective way of controlling your finances. In essence budgeting is the act of writing down your income and expenditure and creating a financial plan based on these figures to make financial progress. Although budgeting is simple in principle, many people fail at budgeting as they sabotage their efforts by setting unrealistic targets or fail to monitor their progress adequately. Here are 5 tips that may help you with your budgeting.

Make a list of your total expenditure per month

You have no way of controlling your expenditure until you realise how much you are spending. Write down a list of absolutely everything you spend your money on. If necessary, spend a fortnight noting every transaction you do, including:

  • Rent/Mortgage Payments
  • Electricity
  • Telephones/Mobile Phones/Internet Costs
  • Newspapers/Magazines
  • Coffee/Alcohol/Cigarettes
  • Transport/Car costs
  • Food Shopping/Takeaways/Snack Food
  • Clothes
  • Socialising
  • Luxury items
  • And every other item you spend your money on

By monitoring your spending you can focus on areas in which cutbacks can be made. It is likely that you will be surprised at how much you waste on small things. While a small daily expenditure may seem insignificant, over the course of months or years it adds up significantly.

Make realistic cutbacks if you want to make progress

Drawing up a budget is designed to make you realise where your money is going and allow you to make cutbacks where necessary. These cutbacks can help save you money which can be allocated to debt payment or savings. Cut backs can be made in any area where you have non-essential expenditure such as takeaway food, magazines or coffee. Cut backs in these areas could save you significant sums of money over the course of a year.

However, budgeting is not about sacrificing every luxury item you purchase. Budgeting need not significantly reduce your standard of living and take all the fun out of life. Ultimately, you still want to stay happy while you are budgeting otherwise you will find it hard to stay motivated. By making realistic cutbacks you can still make excellent progress. For example, items like shampoo can be moderately priced and others cost three times more. By targeting areas of expenditure such as this you can make realistic cutbacks.

Use internet banking to keep tabs on your progress

The internet is one of the most effective technological tools available to us and can also be used to assist you with your budgeting. Using internet banking you can keep track of your savings account and monitor expenditure quickly, addressing any problems that may arise. Previously people had to wait for their quarterly bank statements to arrive; now technology allows us to keep a closer eye on our financial progress.

With internet banking you can easily check your status on a daily basis to see exactly where and when your money is leaving your account and to see if that matches your budget.

Review your budget on a monthly basis

It helps to make sure that your budget adheres to your current expenditure. Circumstances can always change, so you should review your progress every month and if necessary incorporate new permanent expenses and include any new income you may be receiving. By reviewing your budget monthly you can continue making cutbacks that you think are necessary. It also helps in staying motivated allowing you to set up goals that you would like to achieve.

Setting goals

It can be difficult to stay motivated when you begin budgeting because you feel like you are making lots of sacrifices for only small benefits. One of the keys to budgeting is to have a long term plan and to not be shorted sighted in your goals. By being goal oriented you will find it easier to stick to your budget. This is why you need to set up goals. Goals can greatly motivate you in your budgeting.

Budgeting can help you with all aspects of your financial life, whether you are trying to pay more money off your mortgage, repay your debts or simply just have a healthier financial position. It also helps to reward yourself for your achievements; if you have reached one of the goals you have set for yourself you can be proud of your achievement and should reward yourself. This makes the whole process much easier. However, it is important that you stay motivated and realistic with your budgeting; these are the keys to a successful budget.

If you would like to find out what the most effective method to reduce the debt then fill in the following form or call Debt Relief on 1300 781 034 8am - 8pm 7 days a week and our staff will assist you.

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