Studies have proven time and time again that a majority of Americans live from one paycheck to the next. This means that only one missing paycheck could lead to serious financial stress. Living from paycheck to paycheck means that budgeting is a must. To set up the best possible budget for this situation, follow these tips.
List Fixed Expenses
The first step toward setting up a budget that works is listing all fixed expenses. This will usually include housing and transportation. These expenses are those that are necessities that vary little on a regular basis. For example, most mortgages are fixed for 15 or 30 years, and car payments often stay the same on a month-to-month basis.
Compare Expenses To Income
Financial guru Dave Ramsey argues that a zero-based budget is a great option for low-income individuals and families. This means that every dollar gets used every month, or has a specific route to take once it’s in your hands. Any money that’s not assigned to a specific spending category, such as utilities or groceries, should go toward savings. Understanding how much money is coming in each month is key to setting up an effective budget.
Tracking every expense is a great way to see where your income is going. Households with incomes of all shapes and sizes may wonder at the end of the month where all that money went. Keeping up with expenses takes unnecessary guesswork out of the budgeting equation. Knowing where every dollar goes over the course of a month can show where there are opportunities to improve.
Cut Discretionary Expenses
When the numbers for monthly income and expenses are close, it’s important to cut down on discretionary spending. Even some fixed expenses can be cut. For example, turning down the thermostat a few degrees in the winter could save a few bucks on utilities. Purchasing store-brand foods and supplies at your local grocery is a cost-effective way of shopping. Additionally, cutting out a few lattes each week can lead to some serious savings over time. Every dollar is important when a family is living paycheck to paycheck.
Make More Money
Bringing in some more money is a great way to make sure that there is some wiggle room in your budget. There are only so many expenses to cut, but there is no limit to the amount of money a person or family can bring in. Even selling a few unused items around the house can bring in some money that can help you balance your budget. Taking on some overtime or a second job can also work, but only if you have the resources to do so.
Few people really love budgeting. However, it’s a necessary process if you’re looking to improve your finances. Knowing what’s coming in and going out will give you the knowledge that’s necessary to make positive changes and make it less likely that you’re living paycheck to paycheck.