Budget Your Way to Financial Security

18
April

The general downward trend in the world economy has made many people from all walks of life turn to savings and budgets as a way of building themselves the sort of financial security they never knew they didn’t have. The availability of easy credit during the 90s and 00s convinced many people that it was perfectly fine to spend to their heart’s content, since if things went bad they could always get more credit to allow them to muddle through. Unfortunately, both banks and average citizens found themselves trapped in the folly of this line of thought when the credit market began to implode in 2007 and 2008, and by 2009 a rising tide of bankruptcies and foreclosures had brought back the core principle of thrift. Budgeting was back in, and it appears to be here to stay.

The first and most important part of any budget is to be meticulous in determining how much money is coming in and going out, and where this coming and going is occurring. This can be done by keeping strict financial records using receipts and a checkbook, but it is also possible to use budgeting software. Mint.com provides free budgeting software and many banks now use online budgeting software that is linked directly to the customer’s account, allowing for real-time tracking of all purchases. This ideal for someone who doesn’t use a lot of cash to conduct their transactions, since it will record every transaction in real time.

Once a budget has been broken down, it is necessary to first look for ways to eliminate the outflow of money. The biggest and best way to do this is to pay down debt. Paying down debt not only works towards eliminating debt payments; it decreases the amount of money a person will pay out to the debtor over their lifetime. Making only minimum payments, credit card debt can become literally impossible to pay off, with the debtor continuing to make payments years after the initial principle has been paid off. After debts, it is usually a good idea to cut back on non-essentials. Switch to renting DVDs instead of buying them, cook more meals at home instead of eating out all the time, and cancel your subscription to cable channels you don’t use.

Rooting through one’s cable and phone bills are excellent ways to save by paying out less. Most companies bundle in a large number of options, fees and services that their customers never use so that they can drive up the bill. Note that this also extends to insurance companies, who often sneak in premiums for coverage that it makes no sense to have. Carefully reading through all of your bills will let you know what you can cut, where, and how. This is also true of utility bills. While installing insulation, windows and other renovations can save in the long run, simply unplugging things, turning them off, or having them repaired can save hundreds or even thousands of dollars per year. Leaky pipes waste water and weaken the foundation of the house. Plugged in electronics draw current even when they are not in use. Air conditioners and heaters maintain the temperature even when the house is unoccupied. Simply changing one’s habits can often have a significant savings when it comes to the utilities, besides the fact that it is also good for the environment and the long-term health of the earth.

Once someone has got their money under control and is paying down their debt and cutting costs, it is time for them to start investing in themselves. This means saving up money for the future, both in savings accounts and in investments. Every person should set aside a certain part of their income, usually about 10%, to feed into savings and investments with every paycheck. If a company offers a 401k or other retirement package, it is advisable to take it, since it offers considerable benefits in interest and tax reductions. The Roth IRA program is also an excellent way to avoid taxes and gain benefits. It is advisable for those saving up for the long term to invest in the whole market as opposed to individual stocks, since the whole market has risen over time historically while individual stocks go up and down almost at random.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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