Your budget is nobody’s budget but yours. While plenty of people may be making the same or similar amounts of money, no one spends it exactly the same way. We all have different priorities and are all at different points in our lives.
Setting up your budget to accomplish specific goals, in addition to living within your means, will make you even more efficient. When you accomplish your goals you’ll be saving money one way or another and you’ll continue improving your finances.
1. Buying a car
Buying a car can be a tedious process, but you can make it one that works out for you. The first principle is to put down as much as possible in order to reduce the disparity between the value of the car and how much you owe. Depending on what you currently have in savings and when you’re wanting to buy a car, plan out just how much you want to put down and what type or price range of car you’ll be looking for.
The second way to make buying a car work for you is to plan to pay for it all. Knowing how much you can save before making the purchase and considering what your trade-in might be worth will give you the price of a car you wouldn’t need to take a loan out to buy.
If you do end up needing to take out a loan, shop around for the best rate and keep the term as short as possible. Your money will thank you.
2. Saving money
There are two keys to saving money.
- Save money before doing anything else with your income.
- Don’t touch it after that.
Once you have those two things down, you can keep tightening your purse strings to squeeze out as much saving money as possible. It’s ok to have money left over at the end of the month and to put that into savings. Always make sure to take your savings out first and try to cut down on your expenses as much as possible to be the best saver you can be.
Are you wanting to invest money for the future? Get started as early as possible. If you’re already prioritizing saving, then start to use the money in your savings you don’t need to keep liquid for your long-term goals.
Compound interest helps counteract inflation, whether you’re investing in future college expenses, retirement, or for large purchases. Using any tax advantaged accounts you can and starting today will make sure your money has as much time to grow as you have time to add money to your accounts.
4. Buying a house
If you have decided it’s time to buy a home then take a look at your finances. Do you have the necessary down payment? Will you be prepared for the costs associated with owning a home? Can you qualify for a mortgage today? The time frame to buy a home should be based on those answers
Get started saving for the down payment by reducing expenses and creating an account specifically for that purpose. The rule of thumb is 20 percent of the purchase price, so check the housing market where you want to buy and see what your target would be. It can be a lot of money, but the tradeoff for a lesser down payment is mortgage insurance, which is years of added cost to your mortgage. A 15-year mortgage should also be the primary option, while it’s a larger payment, it’s also 15 fewer years paying interest.
Another helpful budgeting tactic is reducing your debt to make you as creditworthy as possible so you can find the best interest rate on your mortgage. Being responsible with your money and eliminating debt while you save for your down payment will help when you finally walk into the lender’s office to apply for your mortgage.
5. Getting out of debt
Too much debt in your ledger? Create a debt reduction plan. Mvelopes can even help with a free debt analysis that will show you how to pay off your debts quicker so you can save on interest.
To get started take your minimum payments required on each debt and plan to pay for those. Try to reduce expenses and find extra money that you can add to pay off either the smallest debt or the highest interest rate debt.
Once you have paid off one of your debts, roll that payment amount over to the next one, and so on and so forth until all your debt is paid off.
6. Having a Baby
Congratulations! There are always a couple questions to ask like “Will you be needing more space?” In which case go back to the buying a home section or check out how much rent would be for what you would need space-wise.
Second, check into how much having the baby will cost you from doctor’s visits to the actual labor and delivery. There are always surprises and other medical care needs, but a general idea will help give you a picture of what you need to be ready for.
Third, what are your work plans while pregnant, during your family leave and after that runs out? How will your life change financially with a child? With all of those answers, you’ll know how much you need to save up for medical expenses and how much you’ll need to have to live off after the baby comes. It will also help to know that you can live on less when your income is reduced or expenses increase. So find a plan that will work and test it out before the due date.
7. Getting Married
Congratulations! Now you have two people to worry about. Talk about how you’ll be combining your finances and make sure you’re on the same page for after the big day. Then start worrying about the big day itself.
What do you already have saved up for your wedding and what will other people be contributing? Secondly, what can you save before the date? Those two answers will help give you an idea of what it should cost in order to avoid taking on debt. Create a plan that will allow you to reduce your expenses and set limits on each individual expenditure. If you don’t know how much you have to spend on a dress or flowers, you’ll probably end up spending more.
Find out how much you’ll need to pay up front and what you’ll need to pay when the day arrives. Make sure you have money ready so it doesn’t get put on a credit card and forgotten about until after the honeymoon, because it won’t look as good at that point.
Finally, keep track of your wedding expenditures on an individual basis so you know where you’re at in the process and where you’re at with your money. If you’re running over, you’ll need to find more money or make tradeoffs down the road.
The best part about your budget is that it’s yours. Make it work for you. Create a plan, track your progress, and adjust as necessary. If you’re always spending more than you have, change your behavior or adjust your spending. Mvelopes can help create, track and adjust, so you’re on the right path to accomplishing your financial goals.