|
Recommended Personal Budget Category Percentages Debt Settlement Truths - Answering the Critics A Review of LifeLock ID Theft Protection Service Will I Owe the IRS Tax on Cancelled Debt? How to Negotiate a Lower Interest Rate on Your Credit Card
3 Huge Tips to Reduce Credit Card Debt |
|
Ok here it is. The infamous and dreaded B-word. Budget. Most people view a household budget as a sort of a prison for your money which constrains and limits your ability to spend it. But in reality, it's really just a spending plan where you spend your money on paper before the month even starts.
Why is it so hard to follow a budget? With easy access to credit through plastic and home equity loans, most people don't see any value in restraining their spending habits. The ease of acquiring personal credit, coupled with an increasingly materialistic society has led a large portion of the public to believe that they can afford anything without thinking about the consequences. It's no wonder that personal bankruptcies are reaching new records every year.
I know it's a pretty worn-out phrase, but it's so true....
"Failing to plan is planning to fail"
Benefits of using a budget
A realistic budget actually brings freedom and peace of mind when it is planned with realistic goals. Most people who stick with a budget find that they can stretch their money further and are not worried about paying bills and meeting their financial needs later in the month or year.
You must have a "roadmap" to follow or you will be subject to every whim and desire (yes, your own!) to spend money on something that you will probably look back on and wish you hadn't.
A couple days after getting $40 out of the ATM, do you look into your wallet and see only $6? I can't tell you how many times this has happened to me! By not keeping track of your spending, your are much more likely to make "worthless purchases."
With a budget in mind, you are likely to make much wiser choices and think twice before spending. With $75 left in your grocery budget this month, you are probably less likely to take your better half out for a $30 dinner.
After creating your budget, you get a great "birds-eye" view of where your money is going and how much you can really afford to spend in each category. Want that new 46" HDTV Plasma set? Well now you know how much you can afford to put towards it every month. If it were up to me in my pre-budget days, I'd be whipping out the plastic. Bad idea.
A budget evens out the bumps throughout the month and over the long run, it can help you actually meet your savings goals for retirement. Yes, you will get old and have to stop working. At that point, you will need an income, and where will it come from? You can't rely on anyone else to keep you going in your golden years, so you must budget for it now.
Tips for creating a workable household budget
I know that the major reason I fell into credit card debt very early was my failure to create a household budget. Without a guideline for my spending, I never really knew I was overspending until it was too late.
Lets look at some major ingredients that make up a budget:
your household income
mandatory payments (utilities/mortgage, etc)
discretionary spending (most all other categories)
savings for retirement
savings for emergency fund
payments to existing debt
Obviously the goal of a budget is to guide your spending to follow the golden budget rule: "Spend less than you make." All of your spending and savings must add up to be less than your total household income. For the most accurate budget, use only your actual take-home pay, not your gross. Take-home pay usually has already had your taxes and insurance taken out, so those items are not required in your budget. For self-employed people, use your after-tax income for your income on your budget.
First, prioritize your expenses.
The order of things that I present here is widely debatable, but its the order that I've learned along the way and seems the most reasonable.
Food and shelter are number one and two, no question about it. After you've planned amounts for groceries and mortgage/rent, then pay your utilities and transportation costs. After that, payments to outstanding debt, then start saving. Some folks adamantly say that you should pay yourself first(saving), but what good is money in a savings account if you can't pay your mortgage? My suggestion is to continually try to increase your savings as your budget allows.
Do I need an Emergency Fund?
It's a generally-held notion that you should save up $1000 for your emergency fund as as soon as you can. After you pay off your outstanding unsecured debt, you should build it up to 3-6 months worth of living expenses, in case of some serious unfortunate event occurring.
Guidelines for Category Percentages
Who much should I spend on each category? Each family is different, and percentages vary depending on your stage of life. A good way to get an accurate assessment of your budgetary needs is to track your expenses for a whole month (or more!) before you create your budget.
Now, if after tracking your spending for a while, you find that you're already spending more that you bring in, then you will have to work hard to tighten the belt and find the right spending levels for each category.
Consider the following amounts as a general guideline. These figures are from the Department of Labor Consumer Expenditure Survey for 2003. It's the average amounts that people from all walks of life spent in 2003.
You can be as broad or as granular
as you like in setting up your categories. For example, I
consider item like toiletries, cleaning supplies and smaller
household items to be part of our grocery category. The
budget is yours, so customize it to your needs. But
remember the golden budget rule: "Always
spend less than you make"
| Also, remember that the other objective here is to never pay more than you have to for products or services, so saving money in every area of your budget is important. |
Here's a few other good pointers that I've learned along the way:
Your budget
will not be perfect the first time you do it.
Give it at least 3
months to start working.
Be generous in
your groceries category. I found that we consistently
under-funded it in the beginning.
Loosen up and
be flexible with your budget. If something isn't quite
working, look for ways to make it work, by either changing
your budget or your behavior.
Tips for budgeting with a spouse
If you are doing
this with a spouse, its important to keep communicating about
the budget and your financial goals. Gently and lovingly
remind each other in moments of weakness what your goals are.
How about something like, "Honey, I really think
we should wait on that, it might delay getting that (insert goal
here) we want in the spring."
It's so easy to get into a disagreement about a particular
expenditure or "unbudgeted spending spree" that someone may have
committed. Don't let it hinder your progress.
Offer alternatives. Keep
Talking!
Mvelopes Personal is an online budgeting system that makes it easy to create an effective personal budget and track every aspect of your spending as it happens. It will help you always know exactly how much you have left to spend, instantly know the impact of every spending decision, effectively manage credit card spending, and quickly create an easy to use household budgeting plan. Click here to learn more
|
Related Articles:
The Debt Snowball Method
Create an avalanche of debt relief and get rid of all your debt
in about 8 years. Start the snowball going by adding 10%
of your income to every payment.
Family
Budget Tips - Strategies to Help Make it Work
Knowing how to stretch your money will allow you
to get more and do more for your family.
Looking for a
easy way to succeed in budgeting? Try the Envelope system.
The envelope system of budgeting is an easy way to
follow your budget by using envelopes to allocate your monthly
budget categories into physical envelopes. Highly
effective!
Recommended Personal Budget Category Percentages
Don't know how much you shoule be spending in each budget category? This will help you out.
3 Easy Ways to fix a Broken Budget
These 3 problems are the most common ways a budget end up not "working". Learn the 3 solutions and tips to keep your budget working for you.
Trim Your Budget - 7 Ways to Cut The Spending
Use these quick tips to help reduce your spending and keep more of what you earn.
How to Start a Household Budget
Use the information and guidelines here to easily create a household budget that will help you manage your family's finances.
5 Great Money Saving Tips
Take a look at these big money saving tips. Save hundreds
per month and stop those spending "leaks."
Better Ways to Manage
your Money
Downloadable and printable budget forms, templates and
worksheets, 5 great money-saving tips and ways to put extra cash in your
pocket
Budgeting
can save your (financial) life!
Learn why a following a budget is essential to financial
success. Pick up some tips on creating and maintaining a
budget and sticking to your new spending plan.
Look at the
free household budget worksheet
This worksheet will
help you analyze your spending and how much money you should
allocate to each category. It's free!
Free sample household budget forms and templates
I've
included here the one that my wife and I created and use on a
daily basis. Its a simple Microsoft Excel document, but
it's effective and flexible. Feel free to use it and
modify it to your needs.
Basic Budgeting - 5 Tips to Get You Started
If you're just starting out in budgeting, you need to know where to start and what to include in your new budget. These tips will get you going in the right direction.
Learn the Benefits of
Effective Recordkeeping
Storing all your important financial documents in a logical
organized manner can save you a ton of headaches in the future
The Importance
of Teaching Children to Save Money
By educating children about the value of a dollar and the
importance of saving money, you will be giving them a solid
platform on which to build their financial future.
Tips on Making a Family Budget Work
Practical tips on keeping a family budget realistic.
The Basics of Saving Money
Get into the habit of saving money NOW. A little saving
now will prevent a lot of headaches in the future, so master the
basics and get the advantage now.
The Power of Compounding
Interest
Learn how to use this powerful force to your advantage and don't
let it ruin your life. You'll be amazed at how simple
interest can make you wealthy over time.
More Money
Saving Ideas and Tips
Making those small adjustments in your life can mean getting
more out of your budget each month.
Debt Free Benefits -
5 Great Reasons to Get Out of Debt Now!
Get inspired and find out
what it’s like to live without debt.
Quicken or Microsoft
Money Can Help Keep Your Finances Organized
These easy to use tools can really help keep your checkbook in
order and give you an accurate picture of you finances.
Avoid the Monthly Payment Ripoff
Be aware of the total cost of the loan before you sign on the
dotted line. Paying cash instead can save you thousands.
The Scoop on Student Loan Refinancing
Student loan refinancing can save you a bundle of money and help
to improve your cash flow and your credit.
Student Loan
Consolidation - What You Should
Know
Making the move to consolidate your student loan debt can reduce
your payments and free up cash.
|
Most Popular Pages |
Personal Money Management Basics
|
Did You Know... |
49% of adults, and 66% of US high school students got F's on a national test on their knowledge of basic economic principles.
|
Food for Thought... |
"I'd rather go to bed without supper than rise in debt."
-Ben Franklin.
