Do you ever wonder where your money goes each month? Does
it seem like you're never able to get ahead? If so, you may want
to establish a budget to track how you spend
your money and help you reach your financial goals.
Whether you just graduated from college, are established in
your career, or you are retired, having a budget and sticking to
it is important to your financial well-being.
Examine your financial goals
Start by making a list of your short-term goals
(new car, vacation) and your long-term goals (your
child's college education, retirement). Next, ask yourself: How
important is it for me to achieve this goal? How much will I need
to save? Armed with a clear picture of your goals, you can work
toward establishing a budget that can help you reach them.
Identify your current monthly income and expenses
To develop a budget that is appropriate for your lifestyle, you'll
need to identify your current monthly income and expenses.
You can jot the information down with a pen and paper, or you
can use one of the many software programs available that are
designed specifically for this purpose.
Start by adding up all of your income. In addition to your regular
salary and wages, be sure to include other types of income, such
as social security, dividends, interest, and child support. Next,
add up all of your expenses. To see where you have a choice
in your spending, it helps to divide them into two categories:
fixed expenses (housing, food, clothing, transportation)
and discretionary expenses (entertainment, vacations,
hobbies). You'll also want to make sure that you have identified
any out-of-pattern expenses, such as holiday gifts, car
maintenance, home repair, and so on. To make sure that you're
not forgetting anything, it may help to look through canceled
checks, credit card bills, and other receipts from the past year.
Finally, as you list your expenses, it is important to remember
your financial goals. Whenever possible, treat your goals as
expenses and contribute toward them regularly.
Evaluate your budget
Once you've added up all of your income and expenses,
compare the two totals. To get ahead, you should be
spending less than you earn. If this is the case, you're on
the right track, and you need to look at how well you use
your extra income. If you find yourself spending more than
you earn, you'll need to make some adjustments. Look at
your expenses closely and cut down on your discretionary
spending. And remember, if you do find yourself coming
up short, don't worry! All it will take is some determination
and a little self-discipline, and you'll eventually get it right.
Monitor your budget
You'll need to monitor your budget periodically and make
changes when necessary. But keep in mind that you don't
have to keep track of every penny that you spend. In fact,
the less record keeping you have to do, the easier it will be
to stick to your budget. Above all, be flexible. Any budget
that is too rigid is likely to fail. So be prepared for the
unexpected.
Tips to help you stay on track
- Involve the entire family: Agree on a budget up
front and meet regularly to check your progress.
- Stay disciplined: Try to make budgeting a part of
your daily routine.
- Start your new budget at a time when it will be
easy to follow and stick with the plan.
- Find a budgeting system that fits your needs.
- Distinguish between expenses that are "wants"
(designer shoes) and expenses that are
"needs" (groceries).
- Build rewards into your budget (eat out every
other week).
- Avoid using credit cards to pay for everyday
expenses: It may seem like you're spending less,
but your credit card debt will continue to increase.
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