Everyone wants to live happily within their means by managing their personal finance efficiently. Despite that, most people fail to do so. They either do not know how to limit their spending or they are not doing it right. However, it is never too late to learn the right way to do it. All you have to do is get started.
It may be overwhelming at first, because you don’t know where to start and how to keep track of your expenses. But it gets easier once you get the hang of it. The key to a good financial health is discipline and simplicity. Set clear targets and define a simple to follow system to achieve a bigger goal in the long run. The most important thing is to stick to your plan until you reach your goal.
Budgeting – A Perfect Tool to Manage Your Finances
Whenever it comes to managing your finances, budgeting is the best tool to apply. It puts a cap on your day to day spending and gives you a constant reminder to limit your expenses. Having a well-defined budget takes your financial worries away and allows you to make informed decisions. You can efficiently meet your needs and achieve your goals if you stick to a planned budget.
A well-planned budget enables you to see how much you are spending on buying grocery items, utilities, and takeaway food. It gives you a good idea of which expenses you have to cut down and where you need to work hard to limit your spending. If you have all this information, you can devise a very simple and effective budget plan that will also allow you to save some portion of your income.
TSL System – An Effective Tool for Budgeting
It turns into a grinding chore when you have to update your budget on a regular basis and keep track of your day to day expenses. Maintaining a balance between income and expenses is a painstaking task that requires proper time and energy.
To tackle it effectively, you can use TSL system that enables you to do that task efficiently without putting much effort into it. Divide your gross income in three proportions, i.e., Tax, Savings, and Life. The following is a brief description of how you can go about doing it successfully:
- Taxes – Allocate 30 percent of your income to taxes. The value seems abnormally high, but it is a hard known fact that a person has to get by. Therefore, incorporate that into your budget and allocate at least 30 percent of the income to paying taxes and other levies, such as property tax or capital gains tax. It will also help you reduce the effect of the tax bite. This is particularly important for those who are self employed or potential buyers.
- Savings – For savings, keep 20 percent of your gross income aside. This is the minimum amount you should save every month to work toward achieving your long-term goal. It can be anything from buying a house to save for retirement. The maximum chunk of these savings normally goes to the employer-sponsored Australian Super, where it keeps growing without tax implications until you retire. If you have not reached 20 percent of your income even after paying for the fund, open a savings account and earn interest on your savings.
- Life – Keep the rest of your income, i.e., 50 percent, for everything you want or need in your life. It can be anything from buying groceries, paying bills, to dining out with family or friends. If, for example, you make $90,000 a year, you can spend $45,000 on these expenses. Putting a number of what you actually have, give you a good idea of how you should spend it.
TSL is a very simple approach to follow as it gives you a head start on budgeting. Not only does it allow you to stay within your means, but also enables you to plan your spending effectively. Most people go into so much detail when creating a budget. Instead, keep it simple and start with the basics, such as food, clothes, housing, entertainment, or car, etc. Once you get the hang of it, you can always add more categories later. With time, you will eventually have a well-designed yet easy to tackle the budget.