Who Wants to Budget?
By Diana Wiley
Even though budgeting is no fun, it’s definitely a necessary evil! It is vital to keep your financial house in order. There are many programs out there that you can use, such as Quicken or Microsoft Money or others available for free on the internet. Before you get started, follow the steps below to make sure you get the most accuracy out of your budget. When you finish this important exercise, you will know exactly how much money comes in, where your money goes and, most of all, how much is left over each month.
1. Look at your income; use only income that you can count on. For example, don’t count on year-end bonuses, tax refunds, or any interest received from investments.
2. Gather as much financial information as possible and include invoices for expenses (such as utilities), bank statements, or any other monthly expense. You want to review the information to deduce an accurate monthly average.
3. Record expenses that are fixed, such as a mortgage payment, car payment, cable bill, etc. Next record expenses that vary like credit card payments, groceries, gas, eating out, etc.
4. Now total your expenses and subtract them from your income. If you are spending less than you earn, and you have debt, it’s time to make a decision to pay down your credit cards. If you are spending more than you earn, it’s time to make some important changes to your budget.
5. Reduce or eliminate some unnecessary luxuries (i.e.Starbucks coffee in the morning, dinners out, movie channels, etc.) Beware if you find yourself getting money from the ATM frequently; it is easy to spend cash and not account for it on your budget. Tip: Ledger in a small notebook all cash expenditures and you will be surprised how fast cash goes and where it goes!
6. Pay yourself first! Save 10% of your income. This can be used for your emergency fund, which should be in a liquid account. You should aim to save three to six times your monthly expenses. Then, invest for long term savings goals.
7. As your income increases due to annual raises, promotions, and bonuses, think twice before spending it. If you want to purchase something, think before buying and ask yourself, “Is it essential?” “How badly do I want it?” Wait a week and then make a decision. Better option: Invest that income increase into your financial future.
8. Look at your budget monthly, and make adjustments as necessary.
Following these steps will help you stay on a budget and sleep better at night knowing you have taken the most important step towards achieving your financial goals!