Budgeting 101

Budgeting is a very important aspect of managing your finances. In fact, without a sound workable budget, it is extremely difficult, if not impossible to manage your finances properly. If you have never taken the time to establish a budget, chances are you often find yourself in a position where your month last longer than your money. Budgeting is a skill that must be taught. Unfortunately, it’s a skill that most Americans live. 


First of all, What is a budget? 

A budget is an itemized estimate of expected income and expenses for a given period of time. In order to set a budget, you must be serious about making an honest assessment of your income and expenses if you want the budgeting process to work for you. You must set realistic goals and be consistent about meeting them every day of the month and every month of the year, year after year. 

Where should you begin when setting a budget? 

It is much easier to budget and save when you have a specific goal in mind, whether it’s college tuition, a family vacation, buying a home or retirement, having a goal keeps you focused and motivated. 

There are two major components of a budget. 

The first is cash flow or income and investments, and the second component is expenses. Let’s look at the cash flow or income. Your income is derived from wages that you earn from your job. You may also receive bonuses. If you have various savings accounts or other accounts set up in financial institutions, the money that you earn from those deposits is attributed to you as income. The same is true for any returns on investment income such as CDs, mutual funds, or real estate. Miscellaneous income could be money that you derive from a child or spousal support or a hobby that you engage in for which you sometimes earn money. 

The second component is expenses. Expenses are an integral part of your budget. Expenses such as the mortgage or rent, utilities, food, family obligations, health and medical expenses, transportation costs, debt payment, charitable donations, entertainment, recreation, pets, clothing, and then there is the catchall category of miscellaneous expenses. 

The first tip in developing a budget is to keep it simple. Begin with your basic expenses and your basic income. Record all of your monthly expenses, no matter how small the amount. This will ensure that your budget is accurate and will help you see where waste is going. Keep a log in your car or purse so that you’ll be able to track every dime. Record your income every month. Some months may be better than others, especially if you have extra income that you earn from a hobby. If you record it, you will be more inclined to use it properly. 

Automate the process. 

The best way to do your budget is by using a computer. There are many different types of programs out there that have budget templates. However, writing it down is still effective. 

Now you ask, how do I make a workable budget? 

Again, be realistic when getting started. You have to choose the ways to save money and reduce expenses that are best for you. Keep these important factors in mind.  If at all possible, pay with cash checks or debit cards instead of credit cards. That way you will avoid debt and finance charges. When you pay with cash whatever you purchase is yours. 

Next. If you use your credit card, pay it off in full each month. If you can’t pay it off each month, try to pay more than the minimum amount due. With consistency, you will eventually be able to pay it off in a shorter amount of time. 

Set up a savings account for emergencies. Not just for your future goals. When you have a savings account, set it aside for that, “what if” in case something goes wrong. You’ll have the money to fix the car or replace your refrigerator and still be able to make your mortgage payment on time. 

Now that we’ve discussed the type of information that should be put into a budget, let’s create the budget. 

There are five easy steps. 

Step one, after you have recorded your income and expenses, subtract the monthly expenses from the monthly income. If the end result shows that you have more income than expenses, you’re off to a good start. This means that you can take the extra money and apply it to your predetermined goals. However, if the result is that your expenses are higher than your income, it means that you’re going to have to make some changes. 

Carefully review all of your expenses and identify the areas where you can trim the fat. 

Sometimes despite your best efforts, trimming the fat still doesn’t put you in the black. If that’s the case, you may need to figure out how to increase your income. Perhaps your schedule allows you to take on a second job or a part-time job. 

Next, you will have to review your budget each month. It’s an ongoing process and you must tweak it every month. 

You’ve just completed budgeting 101 let’s develop an implement those budgets so you can start fulfilling your goals.



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