Budgeting is just like a wedgie – it’s really uncomfortable and would probably leave you squirming until you get rid of it. Unfortunately, that’s where the similarity ends. While you can easily get rid of the wedgie once there’s no one watching, budgeting is like an annoying tick that just won’t leave you. Even if you decide not to budget your finances because no one’s looking, your bank account is definitely looking and judging you silently.
Once you reach the age where it becomes weird to ask your parents for $5 (ergo a legal adult), it’s important to learn the basics of finance distribution. Whether you’re working for college essay writing service or a tech expert who’s earning big bucks, you need to organize your finances.
But how do you distribute your finances once you get your paycheck? Or do you just spend and hope that a magical quail comes to deliver a plate of manna at the end of the month?
Let’s face it: expenses will always come. For instance, you may need to hire cheap essay writers to write a motivation letter for a second degree.
That’s completely normal. However, what really matters is your ability to differentiate between needs and wants. If you can’t do this, you’d find yourself asking for spare change or trying to steal your cat’s food when it’s not looking.
Not sure how to distribute your finances? You’re about to find out how.
Why is it So Important to Distribute Your Finances Properly?
Several people have probably talked to you about distributing your finances. However, it’s hard for you to believe this gospel since they were trying to sell their “Save $1 million in ten days” e-book to you at the same time. We get it.
However, we aren’t trying to sell an e-book here. If you still doubt the importance of finance distribution, here are a few benefits that comes with this action:
Keep Track of Your Expenses
On several occasions, you’ve probably wondered where your money went to. If you live alone, you’d most likely be suspecting that your cat has been stealing your money to buy some catnip. However, the only person doing any ‘stealing’ is you. Even though you technically can’t steal from yourself, you’ve probably been spending more than your monthly income without even knowing.
Creating a solid plan for distributing your finances will help you keep track of all expenses and know when to cut corners.
You Can Save More
Distributing your finances properly will help you allocate more money to your savings. This way, at the end of the year, you could have a sizable sum of money stored up in your bank account.
Spend Less on Unnecessary Things
Remember when you got that fur spiderman coat and regretted your purchase immediately? Not one of your proudest moments, was it?
Distributing your finances properly will help to ensure that you don’t make these kinds of unnecessary purchases anymore. This way, you’d be sure that you’re only spending on items that will be useful to you.
Tips for Distributing Your Finances Properly
Ready to start a new financial chapter? Here are a few tips to help you distribute your finances properly and get on the right track:
Calculate your monthly income
When it comes to finance distribution, your take-home income is what really matters. Don’t start off calculating your pre-tax income as it’s of no use. Instead, focus on your take-home income in order to know how much you have to spend or save at the end of every month.
If you aren’t sure how to calculate your monthly income, here’s a quick tip for you:
- Bi-weekly payment: If your employers pay you bi-weekly, you could multiply your take-home pay for one paycheck by 26 (the total number of paychecks in a year). Divide the result by 12 to get your monthly income.
- Weekly payment: This one is a little easier. Multiply your weekly pay by the number of weeks in a year (52). Multiply the result by 12 to get your monthly income.
- Uncertain payment: If your pay isn’t a fixed amount, it may be a little difficult to get an exact figure. However, you could sum up your payments for three months in a row and divide this sum by three to get the average monthly income.
List all monthly expenses
After calculating your monthly income, it’s important to list out all your monthly expenses. What exactly are you spending on? Calculate how much you typically spend each month on expenses ranging from rent to groceries and minor utility bills.
Also watch out for irregular or spontaneous expenses that you find yourself making far too often.
Categorise your expenses
Once you’ve listed out your monthly expenses, it’s time to categorise them into fixed or variable expenses.
Just like the name implies, fixed expenses are the expenditures that remain constant over the months. They are usually needs, rather than wants and could include your house rent, mortgage, utility bills, insurance and so on.
On the other hand, variable expenses could differ every month. They are usually wants and could arise from your lifestyle choices.
Add everything up
So you’ve categorized and documented your income and expenses. What’s next? Add everything up. Once you’ve added everything up, you’d find out if your income exceeds your expenses or if the reverse is the case.
Does your income exceed your expenses? Congratulations! You’re on the right track. On the other hand, if you’re spending much more than you earn, it’s time for a little introspection. You may need to cut corners for a long while.
Use the 50/30/20 rule
The 50/30/20 rule is a really popular one that was pioneered by Elizabeth Warren. Whether you’re a finance rookie or expert, you’d definitely find this approach simple and clear.
All you have to do is divide your finances into three parts with respective percentages.
50% of your monthly income should go to your basic needs such as rent, utility bills and food.
30% could go to your wants such as trips, new clothes or outings.
Finally, the last 20% should go to your savings. However, this isn’t necessarily a hard and fast rule. You could always adjust the percentages to suit your income level and lifestyle.
This way, you’d be able to boost your savings and living standards.
Distributing your finances properly isn’t so easy, and we’d have to admit that. However, with these few tips, you’d be able to structure and organize your finances better.
If you’re trying to cut expenses, a great way to start is by looking for cheaper alternatives for anything you need. For instance, if you need to write an essay or memo, you could search for free essay writer help instead of hiring an expensive writer.
Don’t forget to invest!