If the income rises at all, it happens much more slowly than expenses that are rising dramatically year per year. A budget helps us navigate through these challenges.
1. Common Average and Big Expenses
To begin with, you need to break down the budget to see all expenses you need to cover.
The typical rent or mortgage makes up approximately 18 to 30 percent of the family’s income.
Social security and pension
This money is generally taken out of the wage earners’ paychecks, so many families may overlook it as an expense but it still is the second-largest.
Monthly Eversource utility bill for electricity, gas, water, and cable takes out a big chunk of your budget. That’s why it’s a good idea to look through the cheapest electricity plans to see if you can find one that’s more suitable for your home. It’s a bonus if you can find one that also lowers your monthly bill.
The cost of food can vary significantly, depending if you are cooking or eating out. Takeout and deliveries can cause your expenses to skyrocket in a blink of an eye.
If you have a car, you have additional expenses for fuel and maintenance.
This is one expense that can be cut if the budget gets tight as great entertainment can be free such as taking a hike, reading a book, looking at a YouTube tutorial or playing a game (games existed long before consoles were created).
With the pandemic, many people were relieved they can avoid spending money on expensive clothes which is one of the perks of remote work.
A dentist appointment, a doctor visit or medication all cost money.
During gloomy economic times, we often cut back on charitable donations when we should do just the opposite as someone else needs the money much more than we do.
Even if you have no college expenses or a student loan in your living framework, public education also involves supplies and field trips which you shouldn’t neglect as any unexpected cost could push you into debt.
2.Importance of Budgeting
In its essence, budgeting is creating a spending plan for your money. It helps you ensure you will have enough of it to meet your obligations.
It helps you stay on top of your finances by controlling where your money is going. It helps you plan and save for retirement. It helps you stay clear of debt and achieve your financial goals.
Moreover, tracking your expenses can help you uncover unhealthy financial habits that could get you into trouble. In other words, sticking to a budget helps you stay on the right track as you gain control over your finances and your life.
3. How To Budget for Big Expenses
Big expenses are like an elephant that can only be eaten one piece at a time. Therefore, planning ahead is essential so you can break even big expenses into smaller and more easily attainable chunks.
Estimate how much you need to save beforehand
Let’s say you want to save up for a luxurious vacation. List all the costs involved, from plane tickets, hotel costs, food and possibly a PCR test. Divide the sum by number of paychecks you will receive until then and then you will know how much money you need to put aside each month to make that dream come true.
Identify the best place to save
There are many specialized savings accounts that offer more attractive interest rates but penalize you if you withdraw before the set date. As tempting as it may be, do NOT take money out of your emergency fund because that equals to signing up for trouble. Also, forget that you have a credit card as it is merely an illusion of money that you don’t have and that will cost you far more than the money you took.
Takeaway – Budgeting can sound like a chore, but you will be surprised how powerful controlling your money feels and how much stress it removes from your life. As the saying goes, stress is the new smoking so anything that reduces your stress levels automatically benefits your overall wellbeing and a budget will benefit your wallet as well.