How To Budget
You work hard for your money, keep track of it, so that you know exactly where it goes.
Whether you're single or the head of a family of 4, a budget gives you knowledge and control of your finances and Its easy to create. Here's the basic explanation of how to create a budget:
- Write down your monthly income
- Write down your monthly expenses
- Compare the two figures. If you make more than you spend, its time to plan on investing the excess into a Savings account. However, if you spend
more than you make, its time to cut the excess expenses.
The first step is not difficult since most of us are aware of how much (or how little) we have coming in. If you're living on a variable or commission-based income, figure out your average for the past six months.
Step two can be a struggle-- follow these tips:
- For your bills, refer to your checkbook or financial software.
- Tracking the cash you spend every day can be more tedious -- but rewarding in the long-run. For a month, keep a journal of every cent spent, including the $1.25 for the soda machine and the $12 for dry cleaning. This process alone can be an eye-opener.
- Don't forget quarterly, semiannual and annual expenses. You might not have paid your auto insurance during the month you tracked expenses, but you still need to budget for it. Divide the expenses evenly, so they fit into a monthly budget.
- Plan on emergencies. Look back over the past year, and make note of big, unexpected expenses, such as kitchen/bathroom repairs, a new transmission or a costly illness. Pad your budget to save that amount over the next year. Budgeting for such emergencies will lessen the future financial stress.
- Figure in savings. You must have goals in your life, and they will most likely cost money. A budget is just the place to start making those dreams financially possible.
- Don't try saving after everything is spent. Plan on the savings. Include it in the budget.
When you finally write down your expenses, group them into the following three categories:
- Fixed -- These are easy to track. These bills are the same amount every time. Examples include your mortgage or rent, car payments and medical/vehicle insurance premiums. Put your budgeted savings in this category.
- Variable -- These are regular bills where the amounts can change on a monthly basis, like the electric or phone bill. In the interest of cutting costs, you can try to look for ways to minimize the upswing of these bills.
- Discretionary -- This is what's left after the basics are covered. This money is easily spent or, with planning, it can be allocated for specific goals.
When you have completed listing your expenses, step three will be easier -- comparing the income and expenditures of your money. Again, if your budget is in control, its great news for you. It's time to start investing that money to secure your financial future.
However, if your comparison results in red ink, it's time to balance your budget, which means either increasing your income or cutting down on your expenditures. The income part you can figure out. Here are some tips on how to cut-down on the spending:
- Just because expenses are regular doesn't mean they're necessary. Of course, you need a roof over your head and reliable transportation, but do you need the premium cable channels or the gym membership? Identify the costs you have been taking for granted, and eliminate them.
- You can reduce those variable expenses by turning off the air conditioning/heater, using less electricity and cutting down on long-distance phone calls.
- Cut your insurance premiums by raising your deductible and reviewing your policy. If you have been with the same insurance carrier for a couple of years, it's time to shop around for better carriers.
- If impulse shopping is eating your income, find a new strategy. Try shopping only from a list. Avoid the mall!
- Food budgets often have plenty of fat to trim. Expensive restaurants can eat a hole in your wallet, as can buying lots of prepared food. Make cooking a family project rather than putting it on the shoulders of one person
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