In today’s uncertain economic climate, setting up a budget is vital to insure survival and stability. Cutting back on luxuries and expenses that don’t contribute to family resources are the first to go. However, there’s far more that can be done to trim costs without cutting deeply into the standard of living.
Budgeting is not something everyone does regularly. Watching where every dollar goes is often placed on the back burner until an emergency hits. Yet budgeting is a vital part of living no matter what state the economy is in.
Most people have simply forgotten or simply don’t know how to budget their time and money for maximum effectiveness. The methods to handling money has not changed since man walked the Earth. Following a few rules can mean the difference between financial ruin and survival through hard times.
The first step to creating a budget is knowing how much you actually make. Your monthly salary, investments and residual income should all be written down. Without this information no budget will work.
Many people don’t realize where their money goes. They spend far more than they should and buy what they don’t need. But without knowing where their money goes, it’s hard to find ways for saving it. The first step is to create a list of all those expenses that includes what is spent for both necessities and the luxuries. Everything from insurance and taxes to video rentals should be placed on the list as well as the monthly minimum payments on credit cards. Don’t forget to list those morning cups of coffee, the cost of the daily paper and tips.
Once you know what your income is and how much and where you’re spending money, you can compare your expenses to your income. It’s tedious work but it will help you realize that you’re likely spending far beyond your income. It’s hardly surprising that many people never get ahead financially. But once they see the reality of the figures, they get sober to the realization that changes must be made. They will have to increase revenue or cut back somewhere.
The books have to be balanced. Bankruptcy is the result of overspending beyond means. In order to equalize your expenses and income you need to take a hard look at areas where you can cut back without unduly affecting your standard of living. Often that means cutting out the frequency of eating out and going to the movies. Buying the latest in clothing fashions, furniture and appliances are not necessary unless the refrigerator breaks down. If the budget can’t be balanced, then it’s necessary to sell some items, like that second car, or otherwise take on a second job.
There’s a lot of sense to the statement of “paying yourself first”. Taking out 10% of your take home pay and putting it toward a safe investment is a smart thing to do. However, if your debts are too high, your best strategy is to pay them down as quickly as possible before you save anything. Investing your money is an important part of budgeting. Your budget should include an emergency fund as you never know when you might lose your job or experience a family crisis. Budgeting for leisure is just as important as it enforces discipline. You need to save for that vacation, the furniture and the appliances you want.
One of the hardest part in saving is in sticking to your budget. In today’s modern society, there’s plenty of advertising and enticements that tempt you to part with your money. It’s difficult to ignore those “buy now, pay later” advertisements and those special discounts you can’t pass up. It takes a great deal of discipline to say no. Sticking to a budget always requires some sacrifice, but the rewards are far better in the long term.
Every month you should conduct a review of your budget. There’s a good chance you’ve given in to temptation and that will reflect on your review. If the budget is too tight for comfort, you can relax some areas. If you get a raise in pay or receive an inheritance, that’s no excuse to party. Make some changes to your budget first. Then if there’s enough room, you can spend some of your windfall.
Following these points will help create the best budget that’s right for you. You insure your responsibility as the head of the family, create self-discipline and provide a safe and secure financial future regardless of the economic climate.