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Create A Budget
Nobody likes to live within the tight restrictions of a budget.
Even the thought of making a budget seems too much like work.
But, it's important to know where you are in your financial life. You can't know how far you have to move unless you know where you are.
So, for at least month or two, you really need to start by keeping track of your expenses. Then you can use the information you have collected to create a targeted spending plan.
There are four steps to making a budget.
- List your income
- List your expenses
- Compare your income and expenses
- Set priorities and make changes so that your income will be greater than your expenses
For a budget to work it must be accurate. For example, don't overestimate your income. Also, don't forget bills that only come due every few months or so, such as car insurance and car registrations. In these cases, list the average cost per month.
If you are not sure how much you spend on things, write down everything you buy for a few months. This will help you see where you spend money and where might be able to cut back so you will have more money for savings or to pay other bills. Make sure you include everything you spend, even if you "charge" some items.
After you have recorded your income and expenses for a month or two you can compare your income with your expenses. To help keep track of your income and expenses you can enter this information on a budgeting worksheet on your computer.
You will then be in a position to look at your income and expenses and ask some important questions such as:
- Am I spending more than I earn?
- Where can I reduce my spending?
- Am I allocating enough money to debt reduction?
- Have I established an emergency fund for unexpected expenses?
- Am I saving enough for my long term financial future?
You can then set priorities for your spending. You should find that spending for items of a lower priority can be reduced.
Create a spending plan that is in accord with your priorities. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation rather than owning a car. Clip coupons, purchase generic products at the supermarket, and avoid impulse purchases.
Above all, stop incurring new debt. Consider substituting a debit card or prepaid credit cards for your current unsecured credit cards.
Creating a budget helps you be in control of your finances. And, that can be a great feeling.
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Budgeting 101
Series of Tips and Encouragement
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