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Budgets - A Necessary Evil

Budget is not a fun word.   No one likes to make a budget and sticking to one isn't going to be easy if you have never had one.  But it is the only way to take control of your personal finances.

1. Budgets - You Don't Have To Like Them, But You Need Them

We can't stress enough how important it is for you to understand your spending habits.  No one wants to be in debt but the majority of Americans are.  In 2004 the average American has over $8,500 in credit card debt.   That is too much.  If you create a budget and stick to it you can pay off that debt and make sure you don't get back into debt.

2. The Four Steps of Budgeting

  • Figure out how much you spend and where you spend it.
  • Determine how much you should be spending to achieve your goals.
  • Decide what areas you will LIMIT your spending.
  • Track your spending.   Setting up a budget is the first step.  Tracking your spending and following the budget is what will help you achieve your goals.

3. Use Your Computer and Software

If you are reading this you probably own a computer.   There are programs on your computer already or programs you can buy that will make budgeting much easier.  Quicken or Microsoft Money are good examples.   Anything that makes your budgeting easier to set up and easier to track is money well spent.

4. Beware of the ATM

ATM's can be a real problem with budgeting.  It is very easy to take out money from the ATM and spend it without thinking.   And then go get more money.   If you aren't tracking your ATM spending you can't maintain a budget.   Make sure to monitor this.

6. Don't Spend Beyond Your Limits

To gain control of your finances and get out of debt it is critical to spend less than you make.   This is how you get out of debt.  But most people don't do this well.   A recent government report showed that households with total income of $50,000 or less are spending more than they make.  That means they are going further in to debt.   If you spend less than you make you are getting out of debt and building savings.

7. Take a look at what is really necessary

Many of us spend money on things we say are necessary but are really luxury items or frivolous spending.  We aren't recommending that you eat only Ramen noodles and drink only water but it is important to look at what you spend on and identify things that are nice to have but that you can really do without for now.  Once you get out of debt you can revisit this and see what you want to add back.

8. Save 10%

A good goal to start with is to try to create a budget that allows you to save at least 10% of your income.

9. Don't budget for windfalls.

Do not include any windfalls in your income.   If you might get a bonus at the end of the year that should not be included in your budget.  Don't include money you expect to win.  Don't include money you think you are going to inherit.   Budget based on your paycheck.  Any windfalls should be considered nice surprises.

10. Don't spend that raise just yet.

The old adage "the more you make, the more you spend" is very true.   If you get a raise and you still have debt, use the raise to pay off debt not to buy a nicer car or go on vacation.   Once you are out of debt you can reconsider your budget. 

Ready to start create a budget?   Click here for the details.




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