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creating a budget

Tips to Create, Prioritize and Manage a Budget

June 29, 2009

in Personal Finance

Mention the word “budget,” and people’s eyes tend to glaze over. Budgeting isn’t the most exciting activity in the world, and on the surface it is extremely limiting. We don’t like it when other people try to tell us how to spend our money, and even setting parameters of our own may seem too much.

What many of us do not realize is that a budget is the ticket to financial freedom. It restricts what we spend each month, but in the long run it allows us to get more out of our money. Instead of frittering funds away on things we could comfortably do without, we can save up for emergencies as well as things we enjoy.

Here are ten tips for creating a budget, setting priorities and keeping tabs on spending.

1. Be realistic. All too often, we create the perfect budget on paper, only to completely blow it in practice. This is frequently because we are not realistic about our expenses. It may help to save all receipts for a month before you start on your budget. That way you can evaluate how much you’re really spending and avoid budgeting too little for any given item.

2. Remember the little things. Eating out every day instead of packing your lunch might not seem like a big deal, but it can really add up. The same is true for many of the habits we have. Cutting back where practical can save you more money than you might think.

3. Lower your bills when possible. A good place to start is with your cable bill. Do you really need all of those movie channels? What about your cell phone bill? Would a less expensive plan meet your needs? Knocking a few dollars a month off of your bills could leave you with hundreds of extra dollars each year.

4. Get the whole family involved. A budget affects the entire household, so everyone should have a say. You may have to make changes that everyone doesn’t agree with, but they will be more likely to accept them if you listen to all input. Family members may also have ideas that you wouldn’t have thought of on your own.

5. Give everyone an allowance, not just the kids. Setting reasonable limits for discretionary spending will help prevent your budget from being derailed.

6. Make sure the necessities always come first. Budgeting for entertainment and other wants is important, but if push comes to shove, food, water, clothing and shelter are the most important things. Budget for these and the things that enable you to work (such as transportation) first.

7. Include savings in your budget. Saving up some money for emergencies is crucial for every individual and family. Try coming up with an amount to save each month and include it in the budget before any non-necessities.

8. Keep track of all expenditures. Save receipts or write down every expense so you can compare your actual spending to your budget. If you spend less money than budgeted, consider allocating more to savings. If you spend more money than you planned, you need to either watch your spending more closely or make adjustments to your budget.

9. Avoid using credit cards irresponsibly. Buying on credit will result in less spending of money in the short run, but you will have to pay it back with interest unless the balance is paid in full each month.

10. If you get extra money, use it wisely. Consider putting it directly into savings or using it to pay down debt. Spending it on something you want might feel good, but that doesn’t help your overall financial picture.

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Household Budgeting Plan: Everyone Should Have One

April 20, 2009

in Money Management

Do you ever feel like the money you earn is just passing through on its way to someone else? A lot of us do. All too often we spend money as quickly as we get it. Some of that money goes toward necessities such as food and shelter, but a goodly portion of it often goes toward unnecessary items.

Whether you can’t seem to save up any money for a rainy day or you’re having trouble getting the bills paid, a household budget can help. Even if you don’t seem to have any money problems, a budget can be of use. Carefully monitoring your spending allows you to save money for retirement, your kids’ education, and any other goals you may have.

Creating a Budget

Setting up a budget is not as difficult as it sounds. All you have to do is list and prioritize. It may not be the world’s most exciting activity, but it’s quick and painless.

The first thing to do when creating a budget is to make a list of all of your monthly income. This includes your pay from work, any self-employment income, and interest and dividends from investments. Some months you may have extra income such as bonuses or tax refunds. And if your work hours vary, your pay will fluctuate. So it’s important to figure the amount you have coming in each month.

Once you’ve listed and totaled your income, it’s time to list your expenses. Start with the necessities that are the same each month, such as rent or mortgage, car payments, insurance and loan and credit card payments. Then figure variable expenses such as electricity, groceries and gasoline. You might want to compute an average over several months to use for these figures, use the highest figure you have on record, or estimate.

Last on the list should be discretionary expenses. These are things you can live without such as entertainment, hobbies and collectibles. Use a realistic figure for these items so you can see where you stand.

Add up all of your monthly expenses. Are they more or less than your total monthly income? If they’re less, you’re off to a good start. If they’re more, you have some work to do. Look at your discretionary expenses and see where you can cut back. If you cut them out completely and still come out in the red, see if you can find ways to cut back on your variable necessity expenses. Some ideas include driving less and using coupons.

Once you have your expenses at a manageable level, you should have some extra money left over. If you have loans or credit card balances, consider using that money to pay a little extra on them. Doing so will reduce the amount of interest you pay and get you out of debt faster. Otherwise, the best course of action is to put it into savings or investments. This will help you be prepared if something unexpected happens.

A household budget plan will help you track your expenses and determine where adjustments need to be made. It can put an end to juggling bills and ease financial stress. If you don’t have a budget, now is as good of a time as any to make one.

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