This is the second week of Back to the Basics. Debt management was covered in last week's blog; we hope the information was helpful. Budgeting, saving, investing, life insurance, and retirement planning are the topics we still need to cover. You may not realize this, but these subjects are all connected. If you are in debt, you can't save, and a budget helps you control your debt so you can save. If you save, you have the funds to purchase life insurance and have an emergency fund, and you can start funding your retirement through investing.
Now that you have listed your debt and decided on the method you will use to pay down your debt, it is time to make a budget so you can free up the funds to pay off your debt. Read on to learn more.
Budgeting is one of the most important things you can do to take control of your finances. It doesn't have to be complicated, but it does take some effort. If you're not sure where to start, here are a few tips:
- Track your spending. Tracking is the first step to understanding where your money is going. You can use a budgeting app, spreadsheet, or even a notebook to track your income and expenses for a month or two.
- Categorize your expenses. Once you know where your money is going, you can categorize your expenses into different categories: housing, food, transportation, and entertainment. Doing this will help you see where you're spending the most money and where you can cut back.
- Set a budget. Once you know where your money is going, you can set a budget. A budget is simply a plan for spending your money each month. It's essential to be realistic when setting your budget. Don't try to cut back too much too soon, or you'll be more likely to give up.
- Stick to your budget. Consistency is the hardest part, but it's also the most important. Once you've set your budget, you must track your spending and adjust as needed. It's also important to be flexible. There will be times when you need to spend more money than you planned. Just make sure to adjust your budget accordingly.
- Review your budget regularly. Your budget is flexible. Please review it periodically and make changes as needed. For example, you can increase your savings if you get a raise. Or, if you have a child, you need to account for the extra and long-term expenses.
Budgeting can take some time and effort, but it's worth it. If you stick to a budget, your financial goals, such as saving for a down payment on a house, having an emergency fund, and funding your retirement, or your child's education, could be within reach.
Here are a few more tips to help you budget effectively:
- Set realistic goals. Don't try to save too much money too soon. Start with small goals and gradually increase your savings over time.
- Automate your savings. Doing this is one of the best ways to save money each month. Set up a direct deposit from your paycheck into your savings account.
- Cut back on unnecessary expenses. Take a look at your budget and see where you can cut back. Do you really need that daily latte? Could you cook dinner at home more often instead of eating out?
- Find ways to make extra money. There are many ways to make extra money, such as getting a part-time job, starting a side hustle, or selling some belongings (Spring is a great time for a yard sale).
- Don't be afraid to ask for help. If you need help budgeting, many resources are available to help you. You can talk to an LPL Financial advisor at Dixon Financial Group, join a budgeting support group, or read books and articles about budgeting.
Budgeting is not easy, but it is possible. You can take control of your finances and strive to reach your financial goals with a little effort.
The Dixon Financial Group Team is here to help; we welcome your questions.
*We hope the topics of debt management and budgeting have been helpful; next week, we will be discussing the importance of saving your money.
David S. Dixon, CFP®
Jacob S. Bierstedt, CFP®, ChFC®