How to save money through effective budgeting

Personal finance management could be interesting. While it is true that creation of personal budget may sometimes be less exciting, it could be very helpful. Budgeting may not seem interesting at first, but once you get into it, you will find it easy and workable.

To be able to create and set a budget, you have to be as realistic and as honest (to yourself) as possible. Analyse your income flow and regular expenses. How much do you earn in a month? How much do you spend overall? Are you cash positive or negative at the end of each month?

Here are some simple ideas that could serve as your guide when you do your budget. Budgeting should not be a punishing activity. Instead, it should be seen as a rewarding one.

• Observe the 60-40 rule.

Many personal finance experts advocate the 60-40 rule. You are advised to spend only 60% of your monthly regular income on all your necessary and usual expenses, including loan payments. The remaining portion of your income (40%) should be kept in your savings, put into a low-risk investment, or set aside within a retirement fund. This principle, of course, entails strict financial discipline.

• Monitor your spending.

Always check or monitor your spending. You may opt to assess your expenses on a monthly, weekly, or daily basis. This way, you could decide which expenses to reduce, keep, or eliminate. As you look into your expenditures, try to set your priorities. Aside from necessities, loan or debt payments should be included in your necessary expenses in a month.

• Live a frugal life.

Live within your own means. You may be surprised at how much you could save if you would review your expenses and find ways to lower them. Aim to save on costs. You may start by trimming the frequency of your visits to the grocery. Try to lower your household consumption. And try to spend only on necessary items.

• Pay your debts religiously. 

It is not advisable to obtain loans or debts unless there is no other choice. If you have debts, try to pay more than the minimum required amount in a month. It would be better if you resolve to pay more for amortizations each month so you could somehow lower your debt level and trim down loan duration or maturity. The shorter your debt stays, the greater your savings could be from reduced interest payments.

• Avoid using credit cards.

If you own one or many credit cards, it would surely be tempting to pay your purchases using those plastic cards all the time. You may find it convenient because you do not need to bring cash. Credit cards are often used by consumers for buying expensive items that they would not want to purchase in cold money because their savings may still not be sufficient for it. Credit card purchases, whether significant or not, always incur interest payments. Credit card debts also grow continuously each month until they get fully paid.

One effective way to prevent yourself from using your credit card is through having a debit card. It is like paying for your transactions in cash, only that the amount is stored in your plastic card. The use of debit card can also help prevent overspending as you would only be able to pay for the amount contained in the account or pre-set as a limit.