Good financial practices and money management skills are necessary for virtually everyone, regardless of how much they earn or the amount of disposable income that they have access to. Proper planning for the future is also an essential part of successful money management. For instance, discovering where each dollar goes and budget development are two wise activities for anyone who wishes to avoid financial crisis. However, sometimes a person may need help with designing an appropriate budget. Here are some essential tips on successful budgeting and other money management skills:

Developing a Realistic Budget

Most experts agree that the key to financial success at any income level is by developing a realistic budget. Setting goals, being able to live comfortably within one’s income and being aware of where each dollar is spent are all aspects that factor into proper budgeting. However, this task can be a bit overwhelming for those who have little or no experience managing money. As a result, some people seek the help of a financial planner when designing a household budget.

Assessing Debt to Income Ratio

The first step someone should take when attempting to take control of his or her finances is to complete a realistic income to debt ratio assessment. Consumers should begin by creating a list of all their income sources. After this has been completed, a list should be made of their fixed expenses, the latter of which refers to those that do not fluctuate each month, such as a car payment or mortgage. Next, variable expenses should be listed, such as money spent on clothing, recreation and entertainment. Creating this list of expenses, even those that seem insignificant, is the best way to track spending patterns and identify necessary expenses. This way, the person can prioritize his or her expenses and eliminate unnecessary purchases. The objective of this task is to ensure that basic needs such as food, housing, education, insurance and healthcare are met.

Both bookstores and public libraries are good sources of essential information concerning money management techniques and budgeting. Additionally, computer software programs are also available to assist individuals to develop and maintain a budget, balance a checkbook and create a strategy for paying off debts and saving money.

Identifying Spending Leaks

Identifying spending leaks is absolutely essential. Spending leaks are defined as money that seems to disappear without one knowing exactly where it went or why. Almost everyone has experienced this phenomenon at some point in their life and it can be very frustrating. One exercise that a financial planner or online money management course may recommend is taking the time to write down where each dollar is spent for one full month. This log will typically include both large expenses, such as monthly utility bills or mortgage and car payments, and small expenses that may seem inconsequential at the time they are made. The latter often add up to a surprising amount of money. This is a very practical way to determine if unnecessary expenses are eating away at money that could be saved for a rainy day.

Avoiding and Eliminating Debt

Another factor that should be addressed by anyone interested in successful budgeting is debt. Outstanding debt can quickly spiral out of control if a person is not careful with things such as credit cards, personal loans and similar arrangements. It is essential that one understand that consumer credit is nothing more than the spending of future income. Therefore, most experts recommend avoiding the continuous use of credit unless one is expecting a windfall with which to pay off his or her various loans. Most individuals who are knowledgeable and experienced with regard to money management will also advise consumers to avoid arrangements such as payday loans or similar ventures at all costs. This is because such arrangements simply wreak havoc with one’s future income and can eventually make it impossible to structure a realistic budget.

Dangers of Impulse Spending

Frivolous spending is one of the most formidable enemies of those attempting to adhere to a budget. The ability to resist spending money on items that are truly unnecessary is key to a sound financial future. There is one simple tip for eliminating this type of spending, which is to implement a cooling-off period before making an unplanned purchase. In most cases, after thinking about the item for a day or two, the individual will find that future financial success will outweigh the desire for the unnecessary object.

Small Changes for Big Savings

Consistency is the key when saving money. Even small amounts eventually add up to a substantial figure, and it is often the simplest actions that result in the greatest savings. For instance, one might try adding a bit of water to a bottle of all purpose cleaner when it begins to run out. Anyone who has tried this with household cleaners or similar products can attest to the fact that the added water does nothing to lessen the product’s performance.

Another example of a great way to save money on household products is choosing a box of powdered dishwasher detergent as opposed to dissolving tablets. This is because the trap of convenience is where many individuals end up spending far more than they should on certain items. Many times such products do not really save the consumer as much time as he or she may think. Most people would agree that pouring detergent from a box is just as easy as placing a dissolving tablet in the dishwasher, although the price difference between the two items can be as high as three dollars.

Those who must buy lunch during their work week can save almost $400 a year by simply ordering ice water with their meal rather than a soft drink. This is another great example of how little things add up.

Getting in Touch With Creditors When Money Problems Arise

Finally, anyone who is struggling financially should immediately get in touch with his or her creditors to explain the source of the difficulties and request a modified payment plan that will allow the consumer to manage the debt in a positive way. It is never wise to wait until delinquent accounts have been passed on to a collection agency. Once this has happened it is a sign that the creditors are no longer willing to work with the client to clear the credit card debt or other outstanding loans.

Although no one is perfect with regard to budgeting money, implementing the aforementioned tips will go a long way toward keeping control of one’s spending. Therefore, anyone whose goal is successful money management should not procrastinate, but he or she should follow the steps outlined above to create a realistic and practical household budget and make every effort to adhere to it throughout the year.

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