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The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.
Achieving financial security without working to a budget is almost impossible, which is why everything you read stresses its importance.
Your budget is vital to your financial security.
Failure to budget would have to be the most common cause of people experiencing financial difficulties, serious debt, and financial disaster. Having a working personal and household budget is a non-negotiable as far as financial security is concerned.
Now, if you’ve reached your 40s without having consistently used a budget, these tips are designed for you. It’s different now; we have less time to set ourselves up for a secure financial future; we have less time to achieve the things we want, once we get to forty.
However, it isn’t all doom and gloom.
Forty year-olds still have a good twenty years of working life ahead of them, during which time they can ramp up their savings and invest more heavily to play catch up. Many people are enjoying a more stable, if hectic, lifestyle; many are in a better position financially, than they were in their twenties.
The main budgeting tip for the over 40s crowd is to make a start.
Delay no longer; set up a working budget today and start creating the life you want to be living, now and in the future.
Purpose of Budgeting
When you first create a budget, your spending habits will be glaringly obvious; they may not be a pretty sight! A budget shows you very clearly where you spend your money and where spending is excessive. It can come as a bit of a shock, so be prepared!
Elements and Characteristics of a Good Budget
Understand the basics of a good budget – it must contain all income and every single expense. It’s easy to forget expenses, so be prepared to have to add things in as you go along. A working budget is always a work in progress. A good budget needs regular tweaking.
A good budget also needs to balance – this may seem a bit obvious, but you’d be amazed at the number of people who continue to work with a budget where spending exceeds earnings. This is a situation doomed from the start – it can only continue for a short time until disaster strikes. So, make your budget balance; look for areas where you are over-spending and cut these back. Reduce or eliminate spending on things that are not important to you, so you have enough money for the things that are.
Regular savings are an important part of a good budget. If you are over 40, your savings figures need to be at least 15% of your total income; 20% is even better. 10% of income is fine for those young 20 year-olds, but at your time of life, you need to sock away much more. If your budget doesn’t allow for this level of saving, find more ways to shave expenses. A little bit from several different areas is easier to do than cutting big chunks from one place. Start with smaller savings, if you must, but at least start.
A good budget is simple and easy to follow. Complicated budgets get ignored and forgotten, and bad habits creep back. You need to check how you are tracking – weekly at first and then at least monthly. Be prepared to make adjustments if bits aren’t working, but try to avoid borrowing from one area of spending to pay for another. Tempting, I know, but it’s way too hard to pay these amounts back to where they belong.
A great strategy for those who have struggled with budgeting in the past is the use the ‘accounts’ system. Basically, you assign an ‘account’ to each area of spending in your budget. So you’ll have a rent or mortgage account; a separate one for food, utilities, clothing, school fees, transport, entertainment, holidays etc. When creating your budget, you’ll have worked out how much you need to assign to each area of spending. These amounts go into each ‘account’ from every pay check.
So, at any given time, you will know that you have enough cash to pay the power bill, buy food and clothe the family. Draw up a simple spread sheet on the computer or keep it all in a notebook if you prefer a more hands-on approach. I know some people who put the correct amount of actual cash into glass jars, until they learn how the system works. Whatever works for you, I say!
When you spend an amount, deduct it from the ‘account’ it applies to. This way, you have a running balance in all your areas of spending ‘accounts,’ and you know your budget balances. You may find that you need to make adjustments from time to time, as things change in your life. You’ll need to re-allocate money from child care to school expenses, for example.
Budgeting for the over 40s crowd must include some form of debt reduction and retirement planning. Start with baby steps if necessary, but do make a start. The sooner you do, the sooner you’ll be on the road to a more secure financial future.
How about you all? How do you budget in your middle age?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6869762317/sizes/l/in/photostream/