Having a budget is one of the most basic things you have to learn financially. Unfortunately, so many people never learn how to budget or even the importance of making one. Many people hear the word budget and automatically think restrictions. However, people in all financial walks of life should make a budget.
My husband and I are lucky enough to have two great jobs, reasonable costs and tax rates in our state and no health problems. This means we have a good amount of disposable income at the end of the month. Do we need to stick to a tight, strict budget? No. However, we do have a budget. We know how much we spend on eating out, clothing and holidays. We try to keep that amount constant but some months we spend more than others. It’s important to know where your money goes.
So regardless your income bracket, make a budget. Learn about your cash flow. You don’t necessarily need to cut back, but once you know, you are in better position to cut back some day if you need to do so.
:: Find a Good Budget Program
First of all, making a budget can be done with simple paper and pencil. That said, investing in a good budget program online is a worthwhile investment. These programs can automate many of the steps mentioned below and help you not to miss certain things in each category. If nothing else, a good budgeting program will keep you organized and make it easy to adjust numbers and figures as your family and finances grow. Personally, I prefer to use Quicken but you can also use Mint, which is a free, online budgeting tool.
:: Make a List of All Expenses
Write down a comprehensive list of all the money that you have to pay out each and every month. Make sure that you do not miss the annual expenses that you may pay like property taxes or car insurance. Everything that you have to pay to anyone else will go in this category.
:: Make a List of All Income Sources
Write down an equally comprehensive list of all the different ways you bring in money. This includes money that you may get from side jobs and income from other people in the home. Only write down those funds that you are absolutely certain you will get. Never budget money that is uncertain.
:: Look at the Money Left Over
One you put all you income and expenses into the budgeting program, the difference left over will be what you have left to work with. If you have nothing left over or if you owe more than you earn on a monthly basis, then you will need to either cut back expenses or find another source of income to get ahead.
:: Budget Some to Savings
It’s vital to put away money for retirement. So many people are having to work longer and longer in order to afford retirement. Their retirement funds were devastated by unexpected medical expenses, recessions and many simply had poor planning. There’s a valuable lesson here to save early. Save more than your think you will need and diversify. Don’t put all your money in investments or all in the bank. Talk to a good financial planner about the best approach for your situation and update it ever year as you age and your situation changes.
:: Budget Some to an Emergency Fund
Your emergency fund is a bit more straightforward. Most experts say that you should put back enough in an emergency fund to cover you for up to one year of unemployment. It may take some time to get your emergency fund up that high, but the investment will be well worth it. I think $1,000 is a good initial goal. Work toward that and keep building. Keep this fund separate from your retirement savings.
:: Budget the Rest
After you take away for all of the above, what is left is considered expendable income. This is where you input how much you plan to use for food, entertainment, clothing and other various expenses. Generally speaking there will be a category in your budget planner for each thing to help you be concise. Even if you have more than enough money to cover your day-to-day and monthly expenses, it’s still a good idea to categorize your spending so you known how much you are spending. This gives you discipline and prevents blind spending.
:: Stick to the Budget
As you go forward month-to-month using your budget, make sure to make adjustments along the way. If you notice that you forgot to budget something in a given month, add it to the following month’s budget to adjust. A budget should be stuck to closely but this does not mean that it cannot be somewhat fluid. If you see room for adjustments, make them. Most importantly, however, make certain that you stick to the budget and hit your targets.
By making a budget and being aware of your spending puts you at a great advantage. Over time you will become disciplined at managing your money and aware of top spending categories. You will be better equipped to make changes during leaner times or in the event of an emergency.
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