Tuesday, August 12, 2008

Personal Finances – Build a Budget

If you or your family has a problem with spending too much, one of the best ways to overcome it is to create a budget and then stick to it. You can’t make too much or too little to make a workable budget. Budgets are for everyone, not just people who can’t control your spending. They are for people who have goals and dreams as well.

First, figure out what your take home pay is after all your taxes and deductions are taken out. Never forget to look at how much the government takes from you each month.

Second, if giving to charity or your church is important to you on a regular basis, determine how much it will be each month. I realize some people will disagree with this being second, however many of us feel strongly about this and find they better manage the rest of their money when then commit to giving first.

Third, figure out what your regular bills are every month just as rent or mortgage, utilities, gas, insurance, food (non-restaurant), and any debt payments you must make like a car loans, school loans, or credit cards that need to be paid off. Decide if you want to pay any of these debts off faster like the credit card. Commit to not putting any more money on the credit card or this debt will just grow rather than go away which should be the goal.

Fourth, look at the receipts you have a for a month and categorize them into needs incidentals (i.e. you got a cold and needed some cold medicine, or went to the doctor for something worse), entertainment, eating out, non-needs incidentals such as candy, girl scout cookies, or who knows what people buy that they don’t need. You may also want to use this method to determine how much you’re spending on gas and groceries each month. Determine if this is a reasonable amount to be spending each month or if you should cut back in areas such as eating out or entertainment. Don’t cut these out completely but look for ways to spend less in these areas so you can stash more away in retirement or your emergency savings. Depending on how strapped you are at the end of the month you may want to evaluate the need you have for such luxuries as cable or cell phones.

Finally, determine how much you can save and how much you would like to save. Start out with a number you can commit to on a monthly basis without over-extending your budget and leaving a bit of a cushion for incidentals. Savings means all kinds of things such as a regular savings account, 401k, IRA, or regular stock portfolio. Figure out how you would like to divvy it up keeping in mind that savings for emergency purposes as well as future large purchases such as a vacation, gifts, or fixing up your house, are necessary components to savings. Look for little ways to save a little extra here and there be it by stashing some cash every once in awhile and leaving it alone or a change jar, or whatever you can afford from time to time.

I’m sure I’ve missed something, but these are the basics to getting you started on a budget. You’ll find things that work for you that may be different that what I say. But just remember, it is your personal responsibility to live within your means. This is a tool that can get you started on that path.

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