4 Amazing Budget Trikes That Will Help you Save
“Don't tell me what you value, show me your budget, and I'll tell you what you value.”
― Joe Biden
I find it very easy to make a budget every month (I even have a spread sheet I created to use with my monthly spendable income and Expenditures), however; sticking to this budget is a challenge. So, writing this article has helped me a lot in terms of how to correctly create a budget and how to actually stick to it. I’ll share few of the budgeting and financial concepts I learnt and how to apply them in a step-by-step, systematic order. I have challenged myself to follow these steps starting this month, I also challenge you to try it for yourself and let’s see if it works. Okay, here it goes.
Step 1: Total your Monthly income, calculate your total expenditures and Balance them
I know most of the times we feel like our incomes or salaries are never enough (I think sometimes they are not). In such cases, it is advisable that one finds a second job or starts a small business so as to increase their monthly income.
Total all your monthly income and ensure that expenditures do not exceed total income. To be successful, this process requires one to set priorities. Define each spending category as either fixed or variable expense. Fixed expenses are those that are necessary and cannot be altered easily i.e. Rent or Bond, Car payments, Insurance payments, water and electricity and so forth. If you are a believer, treat your tithe as a fixed expense. Other expenses are variable. Though some variables are needed, some discretion is available with them i.e. Clothing, food and entertainment. These expenses you can easily adjust and this will help you bring you in balance with your spendable income. It is also possible to re-examine your fixed expenses. You might try shopping for better rates with insurance companies or other service providers. You could even work with your lenders to find a less expensive loan or interest rate, but be careful; the goal is to reduce your fixed debt payments, not to add more. Another suggestion is to avoid impulse purchases. I recommend you make a policy to never make a major purchase on the spot. Go home, have dinner, talk about it with your spouse or someone else you trust, pray about the decision, and decide later whether or not to make the purchase. You can remember this advice with the acronym HALT: don’t make major purchases when you are hungry, angry, lonely, or tired”
Step 2: Pay off your Debts
I once came across this quote from a conference report by President J. Reuben Clark Jr. of the LDS church, he said that
“ Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours……. Once in debt, interest is your companion every minute of the day and night, you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you”.
This quote sent chills up and down my spine when I read it. I got to understand the realness and the seriousness of dangers and risks of having too much debt: Interest Rates.
I found ways that can help us eliminate debt:
▪ Firstly, you need to calculate your “ Real Debt”
You could do a spread sheet where you list all your debts, total their monthly re-payments, Interest Rates, Number of payments remaining, and remaining principal. This will help you know the actual amount owing now and how much you will pay in total in the future.
Once you have calculated your real debt, use the following strategies to eliminate current debt and avoid accruing new debt. The more aggressive the approach, the sooner you will be out of debt.
▪ “Power Down” your debt.
Apply the “power payment” approach: As soon as you pay off your first debt, begin applying the amount of the monthly payment toward the next debt on the list. Once the second debt is paid, add that monthly payment to your power payment. Continue by applying the full payment amount of each retired debt to your power payment until all debt has been repaid.
I advise that from the list of your debts in the spread sheet you created, look out for the debts with less monthly re-payments or number of payments remaining and pay these first, then add the exact amount you have been paying for this debt to the second debt and so on.
The power- down approach has the following advantages: Increased debt repayment, Saved interest (The sooner you pay off your debt, the less interest you pay) and Increased saving opportunity (Once debt free, you could invest the money you previously paid towards debt).
▪ Accelerate your debt elimination and Sell assets to further reduce debt
If one is in so much debt, they can consider selling one or two of their assets to reduce debts accumulated. This represents quick action and provides the immediate ability to employ the power-down strategy. Try and sell assets that you really do not need.
Step 3: Make Savings an expense
Savings in economics refers to any income not used for immediate consumption.
Treat savings as a delayed expense. Allocating money to savings is actually “spending” money by putting it aside to use at a later date for necessary needs and wants.
Begin saving at least 1 percent of your income every month. You could do this by carefully planning spending amounts. Then each month that you are able, increase that savings amount by another 1 percent. Increase the percentage to 3 the following months and so forth until you are saving at least 10 percent of your income. I think it’s possible!
Step 4: Pass on the Knowledge
If you are a parent you have a responsibility to teach your children about budgeting when they are still young. “Too many of our youth get into financial difficulty because they never learned proper principles of financial common sense at home. Teach your ¬children while they are young”- Joseph B. Wirthlin, “Earthly Debts, Heavenly Debts,” Pass on the knowledge to your other family members, and have meaningful discussions about being financial savvy with your friends and colleagues.
As I am growing up I am learning that it is not about how much money you make but how much you manage it that counts!