The Art of Budgeting

November 9th, 2007 | Posted in Budgeting

A carpenter uses a set of house plans to build a house. If he didn’t the bathroom might get overlooked altogether. Rocket scientists would never begin construction on a new booster rocket without a detailed set of design specifications.

Yet most of us go blindly out into the world without an inkling of an idea about finances and without any plan at all. Not very smart of us, is it?

A money plan is called a budget and it is crucial to get us to our desired financial goals. Without a plan we will drift without direction and end up marooned on a distant financial reef.

If you have a spouse or a significant other, you should make this budget together. Sit down and figure out what your joint financial goals are…long term and short term. Then plan your route to get to those goals. Every journey begins with one step and the first step to attaining your goals is to make a realistic budget that both of you can live with.

A budget should never be a financial starvation diet. That won’t work for the long haul. Make reasonable allocations for food, clothing, shelter, utilities and insurance and set aside a reasonable amount for entertainment and the occasional luxury item. Savings should always come first before any spending.

Even a small amount saved will help you reach your long term and short term financial goals. You can find many budget forms on the Internet. Just use any search engine you choose and type in “free budget forms”. You’ll get lots of hits.

Print one out and work on it with your spouse or significant other. Both of you will need to be happy with the final result and feel like it’s something you can stick to.

Budgeting – It Can’t Get Anymore Important!

No matter how much money you have, or how much money you don’t have, you must have a budget. If you find that you don’t have much money, a budget can actually help you save more money.

A budget will also help you become more aware of how much money you are unnecessarily spending each month.

Your budget can be very simple, or very detailed. People with a larger income tend to have more detailed budgets, but people with modest incomes will usually do well with a simplified budget.

Your budget can be typed in a document on your computer, written out on paper, or set up in a money management program on your computer. Whatever works best for you and your situation should be used. Don’t make it harder than it has to be.

Starter tips: start by making a list of your income. Include all income that you know will be coming in, including income tax refunds and cash gifts that you know you will receive from Grandma at Christmas.

Some income will have to be estimated, and this is fine. After you know what is coming in, make a list of what is going out. Start with the basics.

Of course you know that you will pay utility bills, insurance premiums, a mortgage or rent. If you have credit cards, you know that you will have payments to make on those.

Outstanding loans must also be paid. List all of your monthly bills, but don’t forget about those other expenses as well, such as groceries, gasoline, household items, and entertainment. Save these expenses for last, so that you can see how much you have to allocate to each expense – and then live within those allocated amounts.

At the top of your list, you should have one very important bill to pay… yourself. Pay yourself first!

Determine how much you can afford to save each week, and then take that money out first and put it in an interest bearing savings account. Do this before you pay any other bill on your list!

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