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With everything going on in the world today with COVID-19, there has never been a more important time to make sure that you are managing your finances in a smart way. A lot of people have lost their jobs, suffered pay cuts, or had their hours slashed. Whatever the case may be, there is a strain on the finances of millions of Americans as a result of the pandemic.
Even for those people who have been unharmed in a financial sense from the pandemic, they often still have the fear that something could happen in the future that affects their earning power. This is why budgeting on a monthly basis has become more of a focus for people in the United States. One of the few positives for the average American is that they are not faced with as many temptations to spend money on a daily basis.
A lot of bars and restaurants have been closed for some time and people are largely confined to their homes. Therefore, they can focus on their spending and not be subject to a lot of the usual expenses that occur in daily life. This article will walk you through four vital tips that will help you if you are asking “How do I manage my budget?”
1. Assess your current spending
The first port of call when you want to know “How do I manage my budget?” and get your finances in order is to have a look to see how exactly you are spending your money on a monthly basis. This means looking at an average month of spending and breaking down every single piece of expenditure, putting it into its respective category.
You can then review the final results and get a proper insight as to where your money goes each month. If you have never attempted to analyze your finances or it has been a long time since you have done so, it can be an eye-opener when you see the figures on the page or spreadsheet in front of you.
The small expenses that you have on a daily basis really start to add up when you are looking at a monthly period. You can quickly see the areas where you are spending too much money and see your capabilities of using your funds in a more effective manner. This allows you to make necessary cutbacks as needed with your day-to-day expenses.
2. Determining your needs
As soon as you have an idea of where your money is going each month, you will then be able to start formulating a plan of action when to ask yourself “How will I manage my monthly budget?”. A monthly budget planner can come in handy when you are conducting this process.
The first thing you need to do is write down on your monthly budget sheet each of your absolute necessary expenses each month. This could be paying rent or your mortgage, food costs, repaying debt, life insurance, bills, and transportation costs. You can then see what money is left over and start to manage it accordingly. The way that you deploy your extra income will vary depending on your age.
Some people may be in a lot of debt and want to use excess funds to pay down some of these debts. Others will just use their extra income to spend as they please, while certain groups will save almost all of their excess income. Getting all of these relevant expenses down on paper through a monthly budget planner is ideal.
As 2020 has shown, you never know when a major catastrophe will be around the corner. This could be in the form of a global pandemic or something in your personal life, such as a death or a serious injury.
This is why now more than never, people are making sure that they have a rainy day fund that they will be able to fall back on during tough times. If you lose your job or have some major unforeseen cost, this emergency fund can often be your saving grace. The size of this find will depend on your individual circumstances.
As a general rule of thumb, you should have at least 3-6 months' worth of living expenses that are easily accessible. Depending on your needs, you will likely want to allocate how much money will be allocated to paying off debt, retirement, and general savings each and every month. All of the leftover money can then be your spending allowance for the month.
3. Make everything easier
Once you know the best way to answer the “How do I manage my budget?” question, it will make matters much easier if you automate as much as possible. This means setting up a direct debit for the likes of your electricity bill, debt repayments, and retirement contributions. There are numerous advantages associated with taking this approach.
First and foremost, you will not forget to manually make these payments as they will now be done automatically for you. When you have these systems in place, it will be a lot harder for you to stray from your monthly budget and not contribute to what is most important. You can map out all of these automated payments on your monthly budget planner so you have a clear overview of everything.
The process of automating your finances is actually pretty straightforward in this day and age. It can save you a lot of time and help ensure that you are always striving towards long-term wealth rather than short term pleasure.
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4. Review periodically
Once you have reviewed your monthly budget, decided on your goals, and automated your finances, you will then be ready to go on about your normal life in a much more carefree manner. You know that the most important aspects of your finances are being taken care of on a regular basis.
However, it is a good idea to conduct another review every so often in order to make sure that everything is allocated in the right way or to adjust to changing circumstances. You may have gotten a pay rise, paid off certain debt, or have a new recurring expense you need to account for.
You may need to rework your monthly budget accordingly. Outside of one of these one-off effects that change your budgeting circumstances, it is a good idea to review your situation regardless every few months. For example, you may be in a situation whereby you can refinance your loans using a company such as ClearOne or Century.
It can be easy for unnecessary expenses to crop up even over the course of a few months. This approach will allow you to stay on top of matters on a regular basis. Some of the useful tools you can use in reviewing your finances is using the likes of a monthly budget planner, monthly budget sheet, and a monthly budget calculator.
Conclusion
As you can see, if you ask yourself “How do I manage my budget?”, the process is actually more straightforward than it initially seems. You just need to get a good idea as to how you are currently spending your money, allocate your funds where they are needed the most, and automate the entire process.
This will likely save you plenty of time over the course of a year, as well as help you make great progress towards your goals. Once you review your situation every so often, you will be going a long way towards striving closer to a level of financial freedom.
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Andrew is a freelance writer who has been crafting valuable pieces of content relating to personal finance for more than five years. Previously, he studied Economics & Finance at university and he has professional qualifications relating to financial advice.
