So you’ve set up a basic budget by figuring out your monthly income and expenses, setting aside a few bucks to splurge, starting to save and investing in your 401(k), but now what? Is there a way to further parse your budget and make your finances even more efficient?
Of course there is, but to do so, you’ll have to take a deeper dive into your finances, lifestyle and habits.
Your initial budget is a great starting point, but like any plan, it can always be tweaked. Ride out that first budget for a few months and examine it for any weaknesses. You may have underestimated certain expenses or overestimated your income. Also, consider any changes to your routine or finances that may have occurred during that initial trial period. If you started going out to lunch with your co-workers every Friday, it can put a serious dent in your monthly finances.
Target your most expensive debt
From credit cards to student loans to mortgage payments, every debt is a different size and has a different interest rate attached to it. The best way to knock down a wall of debt is to select the biggest foundational brick and take it out. Paying down your debt with the highest interest rate means you’ll be spending less in the long run.
A high-interest credit card can also be tackled by taking advantage of interest-free balance transfer offers from other credit card companies. The key with these offers is paying off the debt before the interest-free period ends, as more of these offers kick in with a high rate at that point.
Reassess your habits
While it might not be much fun, taking your budget to the next level should also include a personal assessment of your habits and priorities. If you’re in a less-than-ideal financial situation, how did you get there? Was it too many nights out with the guys or girls? Buying clothes and gadgets you can’t afford?
After trying to get to know yourself a little more, start thinking about the basics of making a living for yourself and your family if you have one. Maslow’s Hierarchy of Needs is a great tool for thinking about what you really need and what you don’t. Obviously, you can’t go without food, clothing and shelter (physiological needs). Insurance and utilities (safety) are also quite essential. Of course, luxury items aren’t a real need, and should have the lowest priority in your tweaked budget.
Look for additional ways to make income
Finally, you may come to the conclusion that you just don’t have enough money coming in. This is a tough realization to come to, but if you’ve arrived at that conclusion – you need to think about how to either increase your income or raise some cash. Taking a part-time job or selling some high-value items can help you get closer to that light at the end of the financial tunnel.
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