The Art of Budgeting: Tips for Financial Literacy

Developing a sound financial literacy standard is one of the most essential life skills, regardless of age. Like it or not, money is the lifeblood of the world we’ve built, and managing your own money properly can be the difference between comfortable living and crippling debt. While many skills go into developing good financial literacy, none are more essential than budgeting. By understanding your financial situation and planning carefully for the future, you can completely change how you handle money and your life.

Here are some key tips and strategies for budgeting to help you make the most of whatever amount of money you make.

Assessing and Managing Your Money

Before investing, buying assets, or even budgeting, you must stop and think.

If you haven’t already, you need to assess your current financial situation. After all, it’s hard to follow the right path if you can’t see the road ahead.

This step should include completing a comprehensive assessment of your financial factors, including your income, expenses, debt, and assets. To make it easy, start by listing all your sources of income, such as your salary, investments, savings interest, and any side hustles.

With your income cataloged, next you should do the same for your monthly expenses.

Start with the essentials such as your rent/housing, food, and utilities, and then add more discretionary spending. This may include dining out, entertainment, or regular significant event costs.

Keeping track of your finances using various tools, including both spreadsheets and financial apps, is always a good idea. This will help you regularly update, edit, and view your financial situation with clarity and ease.

No matter how you assess your finances, with everything noted down you can start visualizing your spending patterns, helping you set informed financial and budgeting goals.

Use Your Credit Cards Wisely, Or It Will Use You

Using credit cards can be either a blessing or a curse.

Convenient tools, credit cards allow you to quickly pay for things all while building up your credit score, which can come in handy when you need to take out a mortgage. They can even offer valuable cashback schemes or other rewards, which are great money savers.

Despite all this, they can be extremely risky.

The average American household owes $7,951 in credit card debt. Given that most credit cards have high interest rates of between 20% and 40%, a lot of money is spent on paying down interest.

To make sure you’re only getting the best out of credit cards, and not the worst, make sure to:

• Always pay your balance in full to avoid any interest payments.
• Try to keep the percentage of your credit limit you’re using (AKA credit utilization rate) below 30% for a better credit score.
• Avoid using credit cards for cash advances, which often have high fees and interest rates.
• Where possible, select cards that offer rewards and cashback.

Don’t Be Afraid to Deal Hunt

No matter how much money you earn, it’s always worth getting the most out of your money with deals and discounts.

These don’t just apply to groceries or entertainment — almost everything, from banks to airlines, offers deals that can help you save money.

For example, if you want to find the best way to send money to Mexico or other countries, you may consider searching around for the best international money transfer apps like BOSS Revolution for lower fees and exchange rates.

Never Forget About Tax

When assessing your finances and calculating your budget, one mistake you don’t want to make is using your pre-tax salary as the amount of money you bring in.

All your calculations should be based on how much money you earn after tax, as this can take a big chunk out of your earnings and completely change your budget calculations.

Put Your Future Self First

After creating your budget, you should first focus on clearing any high-interest debt you may have. The next step is planning for the future.

The Importance of an Emergency Fund

Before buying stocks, shares, or assets, you should prepare for emergencies. This means building up a pot of savings expressly set aside for any type of emergency, from unexpected medical bills, car or house repairs, or losing your job.

Building this emergency fund will help you avoid any real trouble no matter what happens.

Depending on your situation, it is usually recommended that you save enough money to cover 3 to 6 months’ worth of your typical living expenses.

Of course, you may need more cash to create a fund of this size, so it is fine to start small and make regular contributions until the pot is at an acceptable size.

Building Wealth in the Long Term

An emergency fund plans for the near future. With that in place, you’ll want to plan for the long term.

To do this, you have many options; the most important thing is to research which one works best for you. Here are some of the most common options:

1. Investments: Stocks, bonds, and ETFs can often offer higher returns over time, but they can also be a little riskier. To mitigate this risk, diversify.

2. Retirement Accounts: Whether using a 401(K), IRA, or another pension scheme, these accounts often offer tax advantages and employer contributions that help you grow wealth for retirement.

3. High-Yield Savings Accounts: For truly safe wealth building, high-yield savings accounts can help add to your savings pot through high interest rates.

Though it’s never too late, the earlier you begin investing in any of these accounts, the better, as it gives more time for compound interest to build up.

Conclusions

No matter your financial situation, creating a budget and planning for the future is one of the best ways to get the most out of your money.

Following these tips can increase your financial literacy and move towards a more financially stable future.