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5 Simple Steps to Creating a Budget That Actually Works

Online Scheduling and Online Bill Payment

Scheduling your payments  (online or through your financial institution’s bill pay feature) decreases the likelihood of blowing your budget. 

Despite the fact that funds will be sitting into your account until the date they are due to be withdrawn, you’ll know the money is off limits for casual spending.

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IDEA EXTRACTED FROM:

5 Simple Steps to Creating a Budget That Actually Works

5 Simple Steps to Creating a Budget That Actually Works

https://www.crediful.com/creating-a-budget/

crediful.com

7

Key Ideas

Budgeting = creating a plan to spend your money

Budgeting is simply balancing your expenses with your income.

It's a plan for the coordination of resources and expenditures. When you budget your money, there’s a desired outcome. And being able to track your spending should ultimately move you in the right direction towards meeting your financial goals.

How to create a budget

  1. Gather Some Financial Information: gather a detailed list of your income and expenses.
  2. Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
  3. Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
  4. Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
  5. Reward Yourself: you can work a small percentage into your budget to treat yourself each month.

The 70:20:10 budgeting method

This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.

70:20:10 may work for someone with a healthy emergency fund and minimal debt.

The 50:30:20 budgeting method

Under this method, 50 percent goes to expenses, 30 percent goes to wants, and 20 percent goes to a combination of debt and savings.

A person with a healthy amount of disposable income but loads of debt could probably benefit more from the 50:30:20 method.

Allocating expenses

The most common buckets are:

  • Expenses, or your needs: housing, food, transportation, clothing, insurance, childcare,  etc.
  • Debt - monthly debt obligations: personal loan, student loan, auto loan, and credit card payments etc.
  • Savings, including funds for your emergency fund.
  • Consider automating your retirement contributions to ensure you stick to the plan.
  • Wants: don't deprive yourself.

Online Scheduling and Online Bill Payment

Scheduling your payments  (online or through your financial institution’s bill pay feature) decreases the likelihood of blowing your budget. 

Despite the fact that funds will be sitting into your account until the date they are due to be withdrawn, you’ll know the money is off limits for casual spending.

Benefits of automated savings

  • you don’t have to go through the trouble of making an additional transfer
  • it won’t be as tempting to spend money that’s sitting in a savings account that you don’t make regular transactions out of.

SIMILAR ARTICLES & IDEAS:

A Monthly Budget For Your Money

No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.

...

The Envelope System

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

How to Create a Good Budget

The principles that make a good budget, something you can stick to:

  • Being Realistic: Being too strict is a recipe for failure.
  • Making Adjustments: A budget is not set in stone, but a fluid thing.
  • A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
  • Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
  • Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

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Steps of the zero-sum budget
  1. Determine how much you make on any given month.
  2. List your bills: Once you determine how much money you'll make this month,  figure out how much money you need t...
The zero-sum budget

Using this method forces you to “spend” every dollar that you make, by allocating all of your earnings into the different categories that your finances require.

It prevents waste and maximizes your income, with the ultimate goal of reaching zero at the end of each month.  

Saving on Transport

Cycle or walk to work to save money and get fitter. If you’re on the lazy side, invest in an electric bike to help you up those hills in the morning.

Also, if you normally drive to wor...

Saving On Electricity

Turn your lights off when leaving the room. If you live with forgetful people, place little stickers by the switch to give people helpful reminders.

You can also replace bulbs with energy-saving ones.

Saving On Self-Care

Simplify your beauty regime and ditch expensive creams. All your skin needs is a good diet, plenty of water and hydration.

Also, brush your teeth twice a day and don’t forget to floss. Having teeth issues leads to expensive dental bills.

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Common budgeting mistakes
  1. Not Tracking Expenses: it's impossible to stick to your budget if you don't know where your money is going.
  2. Buying on Impulse: Impulse buying is expensive.&nb...
Tracking expenses
One of the ugly truths about budgeting is that when you keep track of your expenses, it’s painfully clear when you’ve gone off track. 

Write it down when you’ve gone over your budget. The negativity you feel will help prevent you from overspending more or doing it again. Just think of this step as damage control.

Being frugal and miserable

If you try to deprive yourself too much, you’ll binge later and throw all your hard work out the window. 

A spending binge can set you back far more than treating yourself occasionally, so go for the occasional minor splurge. Just keep your treats within your spending limits and you’ll be fine.

The 50/20/30 budgeting method
The 50/20/30 budgeting method

With the 50/20/30 budgeting method:

  • 50% of your monthly spending goes toward essentials - your home, your food, etc.
  • 20% of your monthly spending ...
Debt payments

Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.

Reducing your essentials

Play around with your monthly budget to see where you can reduce your monthly spending:

  • You could contact your internet company to get a discount.
  • You can clip coupons and use rebate apps to spend less on your monthly groceries.
  • You could set aside less for medical expenses if you have an emergency fund.
When budgeting comes in handy
  • You have no idea where your money is going.
  • You’re chronically overspending.
  • You’re not saving any money.
  • You struggle to afford the things you really want.
  • You...
Keep everything as simple as possible
The more credit cards you have, the more chances you have for identity theft and the more chances you have to miss a payment. The more investment accounts you have, the less attention you can give ...
Don’t ever let your “future self”...
...take care of your current situation.

Your future self might have more income, but it’s also fairly likely that your future self might have less income and you’ll find yourself in a really bad situation. 

Even if your future self is doing well, there are probably going to be other big expenses that you’ll want to deal with at that time, like buying a house.

Focus on...
  • Building an emergency fund: set up an automatic weekly or monthly transfer from your checking account to your savings, then leave the savings alone until an emergency appears.
  • Eliminating high-interest debt: Set up a simple debt repayment plan by organizing your debts by interest rate, then attempt to make a double payment on whatever debt has the highest interest rate.
  • Saving for retirement: It will actually end up being a much smaller burden than you expect,  lifted up by the pleasure of knowing that you’re securing your retirement.

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Side Hustle to Make More Money

You don't have to sacrifice all of your free time to start a side hustle, use the time you’re comfortable with and make a little bit of progress every day. 

Take Action

Get to working on improving your finances today, not tomorrow. Reading the steps and thinking you’re capable of doing it but postponing it is just an excuse, an unprofitable one.

Communicate With Your Partner

Talking about your financial goals, and scheduling time once a month to go over your finances together can prevent money from affecting your relationship.

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What a Budget Does

As a personal financial planning tool, a written, monthly budget allows you to plan for how you'll spend and/or save your money each month and also keep track of your spending patterns.

Make a Budget in 6 Simple Steps
  1. Gather every financial statement you can (bank statements, investment accounts, recent utility bills).
  2. Record all of your sources of income.
  3. Create a list of monthly expenses.
  4. Break expenses into 2 categories: fixed and variable.
  5. Total your monthly income and monthly expenses.
  6. Make adjustments to expenses: If you have accurately identified and listed all of your expenses, the ultimate goal would be to have your income and expense columns to be equal.
The 50/15/5 rule for multiple financial goals
The 50/15/5 rule for multiple financial goals
  • 50% of your income goes toward essential expenses: rent, bills, minimum debt payments.
  • 15% percent goes to retirement savings. They also suggest you increase this by ...