Having a budget is the critical first tool in managing your money, and you can learn to develop a successful home budget. Wielding this tool allows you to finally start making financial decisions based on the facts instead of fiction.
Budgeting may sound like a boring strategy used by our parents. Budgeting is considered the way to manage money because it helps people keep track of where their finances are going.
But lots of people are choosing not to budget because it seems so needlessly complicated with little or not benefit.
But there is a benefit to budgeting; the real trick is finding a budgeting method that works for you. Here is an excellent resource to help you manage your money Household Budgeting will help you.
The first thing you need to do is develop a successful home budget.
Creating a successful home budget does not have to be restrictive. But, it should be a guideline to help you manage your income and your expenses each month.
We are using a monthly time-frame to look at your cash inflows and outflows. Because most bills are monthly and four weeks is a short planning period that most people can manage.
The first thing you want to do is list all your expenses on a month-to-month basis. Seeing all the numbers in black & white can help you prioritize (and negotiate with all the other spenders in the family).
Next, list out your fixed monthly expenses, such as rent, mortgage, car payment, phone, electric bill, etc. All of these numbers can be changed in the long-term. But first you need to determine a baseline budget of where you are right now.
The next thing you want to do it list all of your income on a month-to-month basis. This can be accomplished by determining your monthly after-tax income.
Usually, this is the amount of money from your paycheck that gets deposited into your checking account. If your income is variable, then use an average of the last three months.
So now you have your fixed monthly income and your fixed monthly expenses.
Deduct one from the other, and you have the variable amount of money that you are free to spend any way you want for the remainder of the month.
From this beginning budget, you can start to set monthly targets for spending categories, you can focus on reducing the largest expenses, and find areas where you should start doing some price-comparison shopping.
From this remaining amount of money, start listing out your main categories of variable spending: groceries, entertainment, medical expenses, clothing, dry cleaning, personal care, and gifts.
Make as many subcategories as you need to make an accurate estimate. The more precise it is for your spending habits, the more effective it will be for you.
For example, food can be broken down by grocery store/fast food/dining out/work lunch/etc.
Then go through the last few months of your checkbook and credit card statement looking for any spending that hasn’t been covered so far that you need to include for your situation.
Take each of these variable expenses and put an amount next to them that you think represents your average monthly spending for that category.
Now you should have a total number for your monthly income, total monthly fixed expenses, and total monthly variable expenses.
The moment of truth is when you deduct the two expenses from your income to see if there is anything left over.
Many people who have trouble saving find that their expenses are very close to their income. Don’t panic if it is a negative number – it is far better to discover this out now.
So what can you do?
One option you have is to reduce your expenses. This might mean going out with friends a little less or giving up on some luxury that you typically enjoy. Another option you have is to increase your income.
Unfortunately, for many people, this is easier said than done.
One way that you can reduce your expenses and increase your income is by using a debt consolidation loan. By consolidating many outstanding debts that are due throughout the month into a single loan with a single monthly payment you will be accomplishing several things.
First, you will be reducing your monthly payment because you will be securing a larger loan and is spread out over a longer period of time.
Second, you’ll be reducing the amount of interest you pay because you will be consolidating your many debts into one debt from one provider.
Reducing your interest not only helps to reduce your expenses but also increases your income!
And if you are able to find some assets that can help you get a secured loan, you’ll be able to spread out your payment over a longer period of time.
And, you will likely qualify for a lower interest rate because you have some security to offer the lending institution to back up the loan.
Now that you are actively pursuing a budget, find a way to reduce your expenses over time. A secured loan may be able to help you do that.
But don’t forget that there are many ways you can also increase your income.
Congratulations! You are assembling a budget and getting control of your finances; and at the same time you are reducing your expenses and increasing your income.
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