Steps to Setting up the Right Budget
Budgeting isn’t nuclear physics; however it takes a certain amount of preparation, consideration and the ability to keep focusing on the ideals. You also need to be willing to change all your unhealthy spending habits.
There are no fixed rules when you are making a budget which would work for your family, each family is different and so are budgets. The whole key is to create a spending plan which matches your income and which everyone in your home can understand and live with. Stringent rules on spending aren’t really that practical and they won’t help you get on the required track. What you need is a mix of realism and prudence. You should be committed to spending less than you make and saving for the more important things in your life. You should get the budget process right with good planning and these are some ways through which you can start.
1: Keep A List of Every Household Expense for One Month.
People usually have a clear idea of what the major bills in their lives are, it’s usually the mortgage, car loans and the groceries. Other than this you should really know that it’s the small stuff that tends to ruin budgets. Before you whip out your numbers and plans for a budget, you have to determine where exactly your money has been going. Try to record every single household expense for a month and you’ll be surprised at how much all those little expenses tend to add up to.
2: Make A Complete List of Spending Areas.
As soon as you have noted your major expenses, you should make a distinction of household as well as personal expense categories. Most people find their spending areas include such things as: mortgage/rent; car loans; insurance premiums; utilities; groceries; entertainment; school lunches; clothes; business expenses, etc. You should ensure that everything is accounted for. You should keep track of everything that is both regular and the irregular minor expenses that you tend to get from time to time.
3: Compare Your Expenses To Your Income.
After getting all your expenses figured out, compare what you have to your income after and other necessary financial contributions have been deducted. A lot of people tend to make the mistake of assuming that if they can make $65,000 a year, they can equally spend the same amount. After receiving payroll deductions, the truth is that they probably really receive like two-thirds of that amount. Your expenses may be much higher that your income and you have to take some very serious steps to rectify the situation.
4: Be Realistic.
You have to understand the reality; nobody can continue to spend more than they make without suffering from some serious consequences. It gets to a time where you won’t be able to defer any expenses and where you won’t be able to get paid. You might be headed for disaster and you have to get real. As soon as you have seen where your money is going, you have to start to control the waste.
5: Together Come Up With A New Spending Plan.
Once you’ve cut out all of the things you know you can do without, it’s time to prioritize your spending list to see what else can go. List the most important life expenses first: your house or apartment; food; health insurance; car costs; school fees; etc. As you move further down the list, add entertainment; eating out; taking the kids to an amusement park; summer pool fees.
Guy Starbuck is a health oriented, water drinking writer and financial guru who writes for PennyStockMaven.com, ForexFoundations.com, and InvestingHead.com.
