Finding a better job that pays more is not always an option. Sometimes one must make do with what one earns. However, this does not mean that individuals cannot manage their finances in such a way that will allow them to have a healthy financial life and be able to afford products and services that may be over their income level. Properly budgeting your income to keep bad debt away and be able to buy whatever you may want is possible, though it will require careful planning and discipline.

This having been said, three main steps must be taken to ensure that you use your income as efficiently as possible. These do work separately. However, they produce astounding results if you use them together, especially for an extended period of time, such as several months. Here is what you need to do to properly balance your monthly income and expenses:

Create a Budget That You Will Follow Religiously

Start by collecting all the receipts that you get when you make monthly purchases. These should include groceries, medical supplies, gas, public transportation (in case you commute to work), and any other fixed payments that you have to make such as utility bills and rent.

Once you collect these, separate them into envelopes—one envelope for each month. After around 60 days, open the envelopes and start going through the receipts. The goal here is to determine what purchases are essential and which ones were for products and services that could be classified as luxuries. For example, paying a basic phone bill is often a requirement to work and stay in contact with others. However, a Netflix subscription can be considered a luxury.

Take the data that you’ve collected and created a budget that will only include the essential expenses. To it, add 25% of what remains for your income as “Miscellaneous”. You will be able to spend this money on anything you want. Everything that is left after this should go do a savings account.

  1. Open a Savings Account with a Great Compound Interest Rate

Once you’re on your way to saving money, you will have to store it somehow. The best course of action is usually to open a savings account at a bank that offers a great compound interest rate. This will essentially generate money for as long as you’re contributing to that account without withdrawing anything. For example, if the interest rate is 0.5% and you deposit £1,000, then you will receive £5 every month. However, if you don’t withdraw anything from the account, after the next 30 days, you will receive 0.5% out of £1,005. This process will repeat indefinitely.

  • Get a Line of Credit Instead of Loans or Using Credit Cards

The last step is to reduce the cost of your future debt as much as possible. Almost all lenders offer lines of credit, which have the advantage of having lower interest rates than those of credit cards. Furthermore, unlike loans, you only pay interest for what you use out of the money that is available to you.

  • Discipline Is Key for Long-term Results

Discipline is the key to a healthy financial life. Although all three of the methods presented above will help increase your spending power, from one month to another, the real advantages can only be seen after a longer period of time, as the money that you put aside starts to accumulate.

It is important to keep in mind that an important rule of proper budgeting your income is to never give in to temptation and spend the majority of your saved money, on a whim. Whatever you put aside should be used as a financial buffer in case you ever need to pay for an emergency medical procedure or if you spend your income ever drops.

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