How to Live an Efficient Budget

“Twenty dollars earned, nineteen dollars spent – result happiness. Twenty dollars earned, twenty-one dollars spent- result misery.” Being good with money isn’t about how much you make—it’s about how you manage and plan.

Whether you recently drained your savings accounts during a financial crisis or you are just getting started with savings, use these tips to build or rebuild them. The secret to increasing your savings — whether it’s earmarked for your emergency fund or another savings account — is to pay yourself first.  Put the money into a designated savings account before you pay anything else. Rather than trying to save the money that remains at the end of the month, put it away first—before it gets eaten up by other expenses or you’re tempted to spend it.

How to Live an Efficient Budget

Whether you need to update your insurance, revamp your budget or scale back some shopping habits, take some time to consider these ways to have an improved budget.

  1. Decide on your goals and create an expenditure plan– For some people, there’s nothing more appealing than saving for a three-bedroom house with a white picket fence. Others dream of taking a trip around the world or a sabbatical from work. Choosing your money goals makes it easier to work toward them. Once your goals are decided, you need to create an expenditure plan. Most people spend about two-thirds of their income on three essentials: food, housing and transportation. Then there are debt payments, savings, household costs and optional items such as entertainment to consider. Create an annual budget by allocating spending goals for each category.
  2. Don’t settle with the price that’s written– Prices are often a lot more negotiable than you think, even in big-box department stores. If you’ve seen a lower price listed elsewhere, don’t hesitate to ask the store clerk if they can match it. The worst-case scenario is they’ll say “no.”
  3. Don’t rely upon just one source of income- The lack of job security in today’s market means anyone could lose their job or face a salary cut. To create a second source of income, consider turning to one of the fast-growing online marketplaces, such as Fiverr or Etsy.
  4. Maintain your additional income- Earning money outside of a full-time job can complicate matters at tax time; be sure to keep a careful record of all income earned, as well as copies of receipts related to expenses. When it comes to writing off the home office as a tax deduction, be sure to study the IRS rules, which specify that the space can’t be used for other purposes.
  5. Get rid off debts- Credit cards have among the highest interest rates around, averaging approximately 15 percent. Retail credit cards are even higher, with the average APR at 23 percent, according to CreditCards.com. Paying off credit cards as soon as possible can help reduce fees and interest-rate charges that balloon over time.
  6. Record your credit histories- Lenders base their decisions on whether or not to loan consumer’s money, and at what rate, partially on their credit histories. That means someone with a limited credit history (because they have few or no financial accounts) can have trouble taking on a mortgage. Pay bills on time, and be sure to have some accounts in your name.
  7. Calculate your retirement number- Retirement calculators, which are readily available online, make it easy to estimate how much money you should save before retirement. Since $1 million would provide around $50,000 worth of income over 20 years, you probably want to aim for more than that, depending on your lifestyle costs. Look for what you’d receive after years.
  8. Follow the risk-vs-reward-rule- Along with the importance of diversity, the risk-versus-reward trade off is one of the classic rules of investing: If you want higher rewards, you have to take on greater risk. Assess your risk profile and invest accordingly. If you like to know your money is safe, you probably want to keep it in more conservative investments
  9. Emergency Fund- Open a separate bank or savings account if you don’t already have one and name it “emergency fund”. If you find an account that earns interest, that’s even better.
  10. Golden rules for improved budget- Cut spending painless. Save for emergencies. Reduce high cost debt. Take free money and save it.

Finding a way to start saving money so that unexpected expenses aren’t so devastating may not be easy. But shifting your thought patterns can yield long-term results.

“Being a ‘saver’ as opposed to a ‘spender’ is a mindset that may not be natural to most people,” says Aries Jimenez, financial life planner for San Diego Wealth Management. “However, it can be developed through practice.”