One of the most difficult situations people face in life is financial difficulties. The main reason for this is poor budgeting. Often, people are not taught how to budget early enough in life to understand how important good money management is to living a debt-free life. Here are a few keys to help you begin to budget effectively:

Follow the give, save, spend rule
If you make $5 an hour, and work 8 hours in a day, you’ve made $40. What do you do with that $40? Since the government takes out about 20% (or more) of what you make, you are already reduced to $32. The best rule to follow is the “give, save, spend” rule. Take that $32 and determine what percentage each time you make the money you are going to give to your church, religious group, or a local charity. 10% is a great number—so (using this example)—you will give $3.20 to your church, religious group, or charity. That leaves you with $29.80.

How much should you save?
It would be best if you can save 10% as well. If you tuck back just 10% of what you make each day/week/ etc, that will add up quickly to a nice savings account for you. So another $3.20 takes you to $26.60. This is what you actually have to live on.

The $26.60 x 5 days per week = $133. Multiply again by 4 weeks in a given month, and you have $532 per month on which to live. The rest, remember, goes to giving and saving. From this comes your food, rent/mortgage, utilities, car insurance, car payments, repairs, groceries, and miscellaneous.

Overall, this is a great rule to follow. You are giving of your resources to those in need, you are saving for your potential future needs, and you are paying your bills and living on the rest. It’s when you do this in reverse that you get into trouble.

Review monthly income vs. output
Make a quick balance sheet of your monthly income vs. how much money is going out every month. At the top, write down what your income is, and then on the left, create a line-item list of everything you pay out each month. Once you have done this, you will see how you are spending your money, and will be able to manage your money more effectively.

Credit cards
Credit cards can be dangerous. They are the promise of money with so much interest that if you do not pay them off every month, the interest rates alone will overtake the principle owed on the credit card. If at all possible, avoid credit cards. For some, it is best to pay cash for everything that you can unless you have to use a credit card for something like reserving a hotel room or car. Just make sure you have the money put aside to pay off the credit card as soon as the statement comes to avoid finance charges and racking debt.

Loans/Lines of Credit
A loan or a line of credit is another thing to try to avoid at all costs. Most people cannot avoid a home loan—so make sure your interest rate on your home is reasonable. If not, see if you can refinance at a lower interest rate, which will decrease your payments and will enable you to better pay off the balance on the principle of your loan. Lines of credit are great for temporary situations; however, make sure to not become dependent upon them. You will pay the interest only for a period of time, and then will be forced to pay back the entire amount at a later date when the loan matures. Watch for floating interest rates as well. This can kill you from a budgetary perspective, as your monthly statements can fluctuate depending on the market itself.

Teaching your children about budgeting
One of the most important gifts you can give your children is to teach them about budgeting. Give them an allowance, and teach them how to budget to buy the things they want, while learning how to save some and give some away to those in need. Even if your child only makes $5 per week in allowance, they can learn the basics of budgeting so that when they are an adult making their own financial decisions, they are able to understand how to budget their own money effectively.

Overall, budgeting can be an arduous task that people don’t wish to think about. However, with a little concentration and determination, everyone can learn how to budget their money effectively.