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Creating a budget can help reduce your financial stress

by on March 1, 2016

Agreeing about money matters is a challenge for many couples and families. It takes time, effort, and effective communication to get on the same money track.

If your family’s financial health is good, it can make everything else go better – it can result in less anxiety, higher quality sleep, better relationships, healthier eating, and overall improved well-being. If the opposite is true, then it can affect those other areas of your well-being negatively.

What is good financial health? Does it mean having a lot of money? Absolutely not. Good financial health means being able to reduce stress caused by money issues no matter whether you live paycheck to paycheck or have more than enough to meet your basic needs. Like many other things in life, having good financial health does not just “happen,” it takes effort.

The first and probably most important step in reducing financial stress is to make a budget. A budget helps you take control of your money; build an emergency fund; reduce debt; establish and maintain good credit; and save for retirement.

Here are some tips to help start a budget:

  • Creating a spending plan. Track your expenses for 1-3 months – cash, debit, credit. Categorize expenses and write them down. Make sure to itemize your family’s actual needs – shelter (including mortgage or rent, heat, lights, utilities), clothing, food, and transportation (car payments, maintenance, gasoline, etc.).
  • Identify patterns. Your basic, “set” monthly expenses should be consistent, and identify variable expenses; pay special attention to challenging categories such as credit card balances. Review your allocations for each category and adjust as needed.
  • Look for ways to be flexible. Explore reducing some set expenses such as cellular phone plans, cable TV, insurance, etc. Identify factors that impact variable expenses for food, utilities, fuel, entertainment, etc., to manage these expenses more effectively. Then decide on needs versus wants.
  • Some hidden costs. Don’t forget to include in your budget areas like eating out, entertainment, pocket money, annual and other less-frequent payments, seasonal expenses, and maintenance expenses for auto care and repairs, home repairs and improvement.
  • Cash flow traps. Watch out for these cash flow traps – steadily increasing credit card debt; the trade-up syndrome – spending more as income rises; debit card transactions; and failing to track cash expenditures.
  • Paying yourself and your debts. In creating your budget, be sure to pay yourself first – this means setting aside an emergency fund as well as money into your savings account or retirement fund. If you have a large amount of debt on credit cards and other loans, use the “snowball method.” Choose the lowest loan amount and earmark it to be paid off first with extra payments, while you make the monthly payment on other debts. When you’ve paid that one off, do the same for the next-lowest debt, and so on. This technique cuts your debt-paying goals down into manageable chunks.

 

From → News From AEP

One Comment
  1. I did have my financial budget set very well until AEP changed my medical benefits and helped their budget,

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