Where do you turn when the budget no longer supports your monthly costs? Do you turn outward to third party money measures or inward to evaluate and fix the problem within? Someone who turns outward may continue to live in financial disarray until they find a new way to support their lifestyle. A person who looks inward will not only correct a current problem but also help to prevent the problem from reoccurring.
One of the biggest budget disruptions are emergency costs that usually come in the form of an unexpected expense. Emergency bills are not necessary life threatening as they are urgent to handle in a timely fashion. Late payments do not look good on your credit history, but they are better than missing the payment altogether.
In order to fix the problem within, individuals need to get ‘real’ with their income. What is the net income of the household? Monthly costs must fit into this figure. The more there is left over, the better prepared you will be when those emergencies pop up. If you live well within your means, your finances should not only support your lifestyle, but future demands as well.
Evaluate priority expenses
In order to make your life fit into your budget, you will want to take a close look at where your money goes each month. A budget is the best way to monitor expenses. Bebin exploring the money which goes out towards costs to keep your household running. These expenses take priority over all others - the needs.
Mortgage or rent - This cost should be less than 25% of your net income while some financial experts would suggest to keep the cost under 35%. You may be able to ‘afford’ the higher priced home or rent, but it is not in your overall best interest to make your budget run so tightly. As tempting as it may be to purchase the larger home, consider the long-term effects on your budget. Consider downsizing if you already have a mortgage or rent payment which takes up too much of your income. Find a reputable Real Estate agent who knows your buying area well. Look into refinancing a current mortgage. Explain the financial mechanics behind the sale and any good agent will help you find the best home for your budget. If you are in a leased rental agreement, talk with the management company and explain your situation. They may make arrangements for you to get out of your lease early especially if you had been a responsible tenant thus far.
Utilities - Regulate these costs by cutting back on usage. Call your local utility company to find out if there are any assistance programs and what the qualifications are. Many of these programs are income based. It never hurts to ask.
Vehicle - There are many costs involved in owning and operating your vehicle. Make sure your car payment fits comfortably in your budget; experts say no more than 20%. Just as in housing costs, this figure does not mean you need to use it all. Shop around for a reputable dealer. Do the same with financing as well, be on the lookout for low interest rates. Credit Unions typically provide their members better loan rates as compared to banks and private lenders. Bottom line - buy what you can comfortably afford. Shop for best price insurance premiums. Make sure you are getting good coverage for the amount you spend. Cheap insurance may help the monthly budget, but make sure it is cost effective if something happens.
Food/Fuel Categories - Give this budget category a monthly or weekly capped amount. Do what it takes to stick to the plan as this category can and will create budget problems.
Student Loans - If you are one of the millions of Americans faced with student loan debt you will want to tackle this expense before it hurts your overall finances. Don’t avoid making payments. There are deferment and forbearance programs which will give you more time to figure out your financial situation without hurting your credit. Student loan debt services will help you develop a plan to make your federal loans more affordable through possible forbearance, consolidation or income -based payment plans. Private student loans will need to be serviced through the private sector. Contact the lender or your bank/credit union and ask about consolidation programs.
Once you have these expenses controlled and fitting comfortably in your budget, you can then proceed to save and plan for retirement. Keep any additional lifestyle expenses well within your budget. Working to keep up with debt payments is frustrating and stressful. Living off your income comfortably is a great way of life.