Saturday, August 29, 2009

Budget Doesn't have to be a Four-letter word

Budget doesn’t have to be a 4-Letter Word

Many people dread the word budget. Money is active, you have to tell it where to go. The basic principle of making a budget is recording how much money you have coming in for the month. From that you subtract expenses for the month. First subtract necessary expenses (rent, mortgage, car payments, insurance, food, etc). Once you subtract the necessary expenses, the remaining amount can be used for savings and other expenses. When figuring your monthly expenses, when you are considering the payments that you may make once or twice a year (car insurance, car tags,
One line item should be savings. To get ahead you should start paying yourself first. Some suggestions are 15% of your income, but if you can’t afford that start with what you can afford and increase it over time. Some people think they can’t afford to pay themselves first. But why work all the time and have nothing to show for it. If you think you don’t have any extra money for this, take a look at what you have been spending your money on and see what expenses can be cut.
Another key action is to live within or below your means. If you constantly spend more than you make each month, you will continue getting in deeper debt.

One way to get your expenses under control, is to track your expenses. For one week if you write down each day everything you spend money on that day. At the end of the week, you can see where your money is going and see if there is a possibility to cut some of the expense.

You must limit your style of living, because you can always spend more than you can make. If someone makes $200,000 and spends $200,000 and another person makes $20,000 and spends $20,000 they are both broke. So it doesn’t matter what you earn, the important thing is how much you save. Also, if your income increases you can increase your expenses some, but try not to spend all the extra you earn.

The act of saving needs to be a discipline and a habit. You need to have the discipline to wait until you have the money saved to purchase something you want. Part of the problems with the current economy is many people give into the instant gratification of purchasing items that they want that they cannot afford. I know it is difficult with all the advertising we see for items and when you see other people with them. But you don’t know what kind of situation they are in. Some people that seem like they are well off because they buy these things may be unhappy and up nights worrying about how to pay for those debts.

I know in some instances people get behind because of medical expenses and job layoffs, etc. That is why it is important to have an emergency fund and to leave below or within your means.

Once you get in the habit of making a monthly budget and living by it, it will get easier and not feel as restrictive as you may think.

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