Personal Finance Budget

What is a Budget? When most people think of a budget they think restriction.  And, the reality is that it is just that, let’s not sugar coat it.

 plan your finances by listing all future income and the related expenses.   make decisions about the necessary and optional items needed to live within your means.

Why Do I Need One? To keep from living above and beyond your means.  A budget helps you prepare for planned and unplanned expenses while putting some funds away for a rainy day or paying off debt.

How Can A Budget Help Me?  It can help you understand where your money is going every month and help you plan for certain expenses.

Money Management the process of knowing where you are spending your money today, and having a well thought-out plan in place for where you want it to go in the future. Set Goals Get Organized Cut Spending Waste Build a Budget Save Money

How do I get started? First, take a look at your debit card statements and bills. Based on that determine where your money has been going over the last 1-3 months.  

Set Goals Second, figure out what categories need adjustments and set goals accordingly. Are you eating out too much?  Did Target see you too many times over the course of the last month?   Figure out what is necessary and what is optional.

Set Goals Financial goals are specific rather than vague. Before you start to save, determine exactly what you want, when you want it, and how much it will cost. There are short-term, mid-term and long-term goals.

Short Term Goals For short and mid-term goals, the calculation for how much you need to set aside each month is simple: the cost divided by the number of months you have to save. Example: The laptop computer you want is $800, and you would like it in six months. To reach that goal, you will need to set aside $133 per month ($800/6 = $133).

Long-Term Goals Long-term goals are a little more complicated because of something positive: you can deposit your savings into an investment vehicle and earn interest, which will help you achieve your final savings goal. Use a financial calculator and plug in the numbers: Example: Your goal is to save $10,000 in ten years for your child’s higher education. If your annual rate of return (interest) averages eight percent, you will need to set aside just $55 each month.

Third, once you’ve set goals, track them! tracking spending, creating a budget and goal maintenance.  

Monitor Your Checking Account If you have a checking account, monitor your account activity carefully. You should always know your correct account balance, if checks are outstanding, and when any automatic payments are due to be withdrawn. This way you will never overdraw your account.

Online Banking… In your checkbook register, list every transaction you make, including deposits, checks, ATM withdrawals, and debit card purchases.

Beat the Budget Busters Avoid those stores, malls and online retailers where you know you have a hard time controlling spending. Write a list of what you need before shopping and buy only what’s on it. Reward your efforts with an occasional, yet affordable, reward. If you’re on the verge of splurging, seek the support of a friend who knows what you are trying to accomplish. Charge purchases only when you can afford to repay the balance in full by the due date.

More Tips… Use debit cards. They provide much of the consumer protection and convenience of a credit card without a bill at the end of the month, and because of the detailed statements you receive, you can track spending easier than with cash. Question each potential purchase to know if it is a want (nonessential) or a need (essential). Recognizing the difference between the two can help you avoid unnecessary spending and impulse shopping. Revisit your goals. By sacrificing those things you don’t really need today, you can attain your more meaningful financial objectives in the future. Setting aside cash on a regular basis is a habit worth getting into. While saving money may at first seem difficult or even impossible, in most cases all it takes is a commitment to the process and adopting an efficient savings system.

How much should you save? An excellent goal is to save ten percent of your monthly net income. Therefore if you make $1,500, ideally you would put $150 into a savings account. Of course, not everyone can set aside that percentage, so if money is tight, begin with whatever you can afford, even if it’s only a few dollars.

Create an Emergency Fund An emergency fund is an important part of every savings plan. Having three to six months worth of essential living expenses set aside will guard your finances against unexpected job loss, medical problems, and high expenses.

Why are budgets important? You work hard for your money – so why not let your money work hard for you? Investing your savings into vehicles (stocks, bonds, mutual funds, and much more) is a wise and efficient way to build wealth.

Harness the Power of Time The earlier you begin to set money aside, the longer your investment has to take advantage of compound interest. $100 per month invested for 30 years, with return rate of 11 percent, would grow to about $280,450. $500 per month with the same return and time frame would grow to about $1,402,250!