Managing your finances can sometimes feel like a difficult balancing act where you have to decide between paying off some debt or putting a bit of money away into savings, but there are some ways to do both rather than choosing one or the other.
Here is a look at ways to balance your budget and put yourself in a better financial position.
The starting point is creating a basic budget, afterward, it is about hatching a viable debt reduction and savings plan. You can also find out which comes first, clearing your debts or putting money away into savings, and discover a way to do both.
Get the full picture
You can’t expect to create a successful money management strategy without creating a budget that shows you exactly where your money goes each month.
The budget needs to cover all of your financial obligations and regular expenditure. Make a list of all the essential payments like rent or mortgage, utilities, credit cards, and loans. Ensure that you account for every bit of money you spend including seemingly irrelevant discretionary spending like buying a coffee on the way to work, as these small sums can often add up to a surprisingly big number throughout the month.
Once you have everything written down in front of you and know where your money is going each month you can then work out how much you can realistically put towards debt repayment and how much you can put away into savings.
It will often mean cutting out some non-essential spending to make that happen and finding better deals on your cable and credit cards will also help to reduce your debt burden.
Create a target list
If you are paying for your car on finance and the deal is ending soon, you might be able to find a better deal than the one you have now, allowing you to upgrade but still save money.
Take a look at CarAdvice details here to get an idea of the makes and models you might be interested in and see if you can improve your current deal and make a monthly saving in the process.
It is also well worth looking at your current cable deal, credit cards, broadband, and phone contracts to see if you can improve on your current deal and create some extra cash towards debt repayment and savings.
Which comes first?
The big question that everyone wants an answer to when they are trying to decide whether to pay off debts or save money is which one should you prioritize?
It feels better to be debt-free but it probably feels worse to be financially exposed and have nothing in reserve in the event of an unexpected financial emergency like a repair bill that you hadn’t budgeted for.
The common-sense answer to the question of which comes first is that it would be wise to make sure you have an emergency fund that you can access in a hurry. If you can set aside at least $500 and preferably $1,000 or more, that will give you a bit of breathing space and should ensure that you don’t have to resort to expensive loan options when you need money fast.
One you have achieved that savings goal, it will be fine to start making inroads into clearing your debt balances, but even if you decide to prioritize clearing debt over saving, make sure you put something into savings each month, even if it is a small amount.
Making a plan
So many people put together a savings plan and know how much they need to save each month to reach their goals, but don’t apply the same discipline to clearing their debts.
It is just as important to create a debt-payoff plan as it is to have a savings plan.
List out your debts and target what order you are going to clear them in. Once you have a plan of action, you can put all of your spare money towards clearing the first debt on your list (which should normally be the most expensive borrowing you have) while continuing to pay the minimum required payment on the other balances.
Once you have cleared the first debt, continue the process working your way through your list of debts. Witnessing the progress you are making in clearing your debts should spur you on to stay with the plan and see it through.
Provided you create an accurate budget and cut out any unnecessary expenditure, there is no reason why you can’t achieve that balance of paying off debt and saving at the same time.
Editor’s note: Nathan Cartwright shares his views and top tips about money, from getting out of debt to putting a down-payment on a house.