Some people are great about keeping up with a budget. I've heard of people who categorize and track every expense down to the penny. They know exactly where all of their money is going.
This is great if you're that kind of person. Unfortunately, I just can't live that way. If budgeting doesn't work for you. Maybe my way will suit you better.
I should probably warn you that my method might sound a little harsh at first, but it's what I've been doing for quite a while now and it seems to be working.
There are only three steps:
- Invest for the future
- Pay for the past
- Live on what's left
It's that simple. Let's break down each step and see what I mean.
Invest for the future
Read any good personal finance book and you'll learn about paying yourself first. Part of your money should be automatically going into a savings account before you even see it.
This can be a 401k at work, or even a regular savings account. Don't worry too much about where it's going now, just make sure that you're putting a little money back for the future every time you get paid.
Pay for the past
I'm assuming since you're at this site that you have a little bit of credit card debt to pay off. Your next step should be to pay your credit card bills.
Some people like to focus on the card with the lowest balance, others like to focus on the highest interest rate, and still other people pay a little extra on each account.
I'll talk about the pros and cons of each of these methods in a future post. For now, just make sure you're paying at least the minimum on each account and you're not late.
Live on what's left
This is where most people have problems. "Pay yourself first" is second only to "spend less than you earn" in terms of financial advice. That's what this step is all about.
Once you've put back a little money and paid all of your bills, you can spend what's left. If you can't survive until your next paycheck, you'll either have to find a way to live on less or eliminate some bills.
I never said this was going to be easy, but it will teach you to live within your means. As time goes on and you pay off a few bills, it gets easier. Before you know it, you'll forget all about budgeting.