Monday, February 11, 2008

Creating a Budget

Anybody - no matter what point in your life you are at - should create a monthly budget. A budget is the one big step you can take, to take control of your financial future. Until you realize where your money is going, (or isn’t going), will you be able to start paying down your debts, putting money into savings, or planning for your retirement. Try this budget and regain control sooner rather than later. There are many different programs available, i.e. Microsoft Money and Quicken that can also be used. Let’s get started...

Monthly Bills
At the beginning of each month, enter in the cost of all your monthly bills (cable TV, internet, mortgage, property tax etc). Because most of your bills are not the same month to month, our budget template has a column for your projected costs as well as the actual costs. This way you can give yourself a realistic look at your monthly expenses at the beginning of the month and enter in the actual amounts when the bills start arriving. Remember, it is better to over estimate the cost of bills then to come up short.

We find it is best to view your savings as a monthly bill. Currently, the United States Personal Savings Rate is staggering around 1%, which makes it apparent, how Americans view saving needs to change. Remember it is recommended to have at least two months of living expenses in a liquid savings account (like a money market fund), so you have easy access to the money in a time of need.
Necessary Expenses
Necessary expenses include groceries, toilet paper, gas etc. Just like your bills, enter your best estimate for each category. For a starting point, consider that in our household, my wife and I budget $300.00/month for food, $115.00/month for gas, and $75.00/month for toiletries etc. It is important to be realistic when setting your projected expenses, think of everything you need month to month. Remember your budget when you’re shopping as well, just because something is on sale, does not mean you should buy it. Many times the best bargain is keeping your money.

Here, simply enter in your after-tax household income, including any supplemental income like rental income. Hopefully by sticking to this budget you will start to see more of this money! After all of your bills, expenses, and income is entered, Excel will calculate a total amount of money left after paying your bills. Assuming you entered your savings as a bill, this amount can be easily divided by four to give you a sense of what you can spend on a weekly basis. We find its helpful to think of your disposable money in week increments, this way you have a better mindset as to what you can afford to do for fun, and not feel guilty about what you do spend, because remember, if it's in your budget, your on the right track!

Actual Costs
To really get a sense if you are sticking to your budget or not, pick a few nights a week to enter in your purchases in the actual costs categories. By taking the time to enter in these figures, you get a chance to examine your spending habits. Perhaps you will recognize Starbucks showing up more frequently then you care to admit, this is a good thing that will hopefully get you to start making conscientious purchases.

How Did You Do?
At the end of the month, after you have finished entering all of your purchases and the correct billing amounts, you will find out if you stayed within your budget or not. Take a few minutes to really examine your month. Ask yourself things like, where did I go wrong? Are there any negative patterns? Where can I make cutbacks? Until you see your finances broken down in front of you, it’s hard to start making postive financial changes in your life.

If you are lucky enough to continually have money left over each month, start playing with the numbers, put more money in savings or pay more money on credit cards with higher interest rates. Both are great ways to reduce debt and accumulate wealth!

It doesn't matter which program or method you use for budgeting your money, it is just important you do it. It does require a little bit of your time, but remember, you work an estimated 160 hours a week to earn your money, you owe it to yourself to spend a few minutes to determine how best to spend it! $

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