Some people love it and some people hate it, but the reality is that all of us should have some kind of budget. In this post I will talk briefly about budgets, how I made one and the order of priorities. Everyone’s situation is different, so you will have to look at your life and finances to find the right rhythm.
At the beginning of 2016 I had a large stash of idle cash and I wasn’t sure what to do with it so I started to think about investing. However, it occurred to me that unless my investments could yield higher interest than the interest I was paying on my car, then my money would be better spent paying it off. And that’s how I feel about all debt, with the exception of a home loan (since so few people can simply pay those off instantly).
If I had debt, this is the order I would pay it off in:
1: Credit Cards (or whatever has the highest interest rate)
2: Vehicle loan (this is a depreciating asset, why pay more than you have to)
3: Student loans
Keep in mind a few details, this will take time and you should always make at least minimum payments on all of your bills as you focus fire on the highest interest debts. Also, it could be difficult, but you should try setting aside a small amount of money every month during the time above the black line. Once you are free of those top 3 expenditures you're well on your way to freedom and it’s time to do some serious saving and investing!
This was a different type of budget blog. I don’t care for pages with arbitrary numbers or sticky stipulations. Many times people attempt to over complicate stuff, but getting a budget is not very difficult. Simply earn income, pay your mandatory bills, pay down debt as quickly as possible, control your spending, and try to be happy. That’s it. No made up 10% or 20% or magic number, that’s all nonsense. Do your best, save as much money as you can and live a full life.
So here is how I do my budget:
I get paid twice a month, so every paycheck I pay half my rent. Then I see what automatic bills are going to come out between now and my next payday and subtract that number. Now I know how much money I have left after paying mandatory bills. So I transfer some to cash savings, then use the remainder to buy investments. That’s basically it. I use my credit card for all discretionary expenditures, and pay it off every payday like any other bill.