6 things most Americans don’t know about budgeting

0

valentinrussanov / Getty Images

As we announce a New Year, many of us will think about budgeting because many of us see the New Year as a new beginning; a clean slate to finally help us put things back in order.

Find Out: Here’s How Much You Need To Earn To Be “Rich” In Each State
Save more: unplug these devices that increase your electricity bill

However, there is a lot to think about when setting a budget. It might seem like a simple task – and it can be – if you do it right. But one or two minor missteps can worsen over time, messing up your finances.

Therefore, it’s important to budget the right way, and the New Year is the perfect time to do so. To help get you on the right track, we want to cover some of the things you might not have considered, as well as some expert contributions. Additionally, we’ll cover some unconventional budgeting tips as well as budgeting mistakes. Covering all your bases will help you get your budget off to a good start in 2022.

Be Aware: 17 Biggest Budgeting Mistakes You Make

1. How much are you spending

If you already know how much you are spending, it might sound obvious. But a lot of Americans don’t know it, and budgeting is impossible if you don’t know it. “In a recent local survey, 1,500 US residents were asked about their spending habits and 65% said they didn’t know how much money they were spending in a month,” said Janet Patterson, expert in loans and finance at Motorway title loans. “To put it in numbers, most Americans spend $ 7,500 each year.”

Knowing how much you are spending is the first step to budgeting effectively. If you don’t know the answer to this question, you can either set up a budget spreadsheet or use a budgeting tool or app to get organized.

Cut Costs: 35 Unnecessary Expenses You Need To Cut From Your Budget Now

2. Where does your money go?

Once you know how much you are spending, you also need to know where your money is going if you want your budget to be efficient. “For example, eating out is often a big expense category and an easy place to save money,” said Nick Bormann, Ph.D., CFP® at Bormann Wealth Management, LLC. “But, start by figuring out how much is going there each month, and you can set realistic goals to reduce the money spent there – rather than setting dramatic goals that might not be met.”

Useful: 37 Life Tips That Will Save You Money

3. Sinking fund

Not to be confused with sunk costs, sinking funds are a way to make sure you always have enough cash to cover your basic expenses. One approach is to periodically set aside money in order to gradually pay off the debt. “I recommend that people have a sinking fund for – home repairs, car repairs, medical needs and vacations,” said Kari Lorz, certified financial education instructor and founder of MoneyfortheMamas.com.

This helps you gradually pay off your debt while still having enough money to cover other expenses. You can also make it automatic so you don’t have to think about it. “Set up an automatic transfer right after payday (so there’s always money to transfer) and a little bit goes into the funds,” Lorz said. “Then at the end of the month, record all the expenses of the sinking funds you used and transfer that money to your regular check to pay your bill. “

Good to know: 50 awful ways to try and save money

4. What are the trends?

Some expenses, such as paying for your mortgage or car, can stay the same year after year. But other expenses can fluctuate, whether it’s due to changes in your life or things that are going on in the world. Consider COVID-19, which has caused a lot of people to eat out and travel a lot less.

“For example, monthly spending on bills and utilities declined by almost $ 200 from 2019 to 2020,” said Kyle Kroeger, founder of The impact investor. “Tracking monthly and annual expenses can reflect precise changes in inflation, pricing and buying behavior, allowing budgeting to be optimized accordingly. You can track these items manually or use a budgeting tool, many of which will help you see trends.

5. Accounting for irregular expenditure

In addition to tracking trends, you should also be aware of irregular spending. These are expenses that you may encounter sporadically, perhaps once a year or a few times a year. But some of them can be important, so we should always keep them in mind.

“For example, there are gifts for Christmas and birthdays, wedding gifts if you plan to attend weddings, vet or medical exams, and driver or car license registrations,” said Jacqueline Gilchrist, Founder of Mom’s money card. “Make sure you have estimates for these irregular costs so that no expense is missed. “

Discover: 101 Easy Ways To Save Money Every Day

6. Link your budget to your current place of residence

Thanks in part to the COVID-19 pandemic, many people are thinking about moving these days. The increase in working from home allows people to significantly reduce their expenses while maintaining their current income.

“People need to stop basing their monthly budgets on the city in which they work and live,” said Marco Sison, financial coach at Nomadic FIRE. “As most companies have already announced remote working as part of their 2022 business strategy, workers should take advantage of this unique opportunity to reduce their monthly budgets and improve their financial situation through geographic arbitrage. “

More from GOBankingTaux

About the Author

Bob Haegele is a personal finance writer specializing in topics such as investing, banking, credit cards, and real estate. His work has been featured on The Ladders, The Good Men Project and Small Biz Daily. He also co-manages Modest Money and is a dog sitter and walker.

Share.

Comments are closed.