How To Set Up A workable Budget
Wednesday, March 18th, 2009 Subscribe To Our Feed
Being unable to pay your bills is usually not something that happens overnight. It takes a while. And, typically, it indicates an inability to handle money in a responsible manner. So what do you do when you find yourself in a situation like this? The best thing to do is to set up a budget. If you want to learn how to manage your money, instead of learning how not to pay your credit card debt setting up a budget is one of the best ways you have of getting out of the situation.
Our minds are constantly playing tricks on us. Most of us have trouble truly conceptualizing our true income. If our salary is $36,000 a year or $3,000 a month, we don’t actually get to spend $3,000 a month. After federal and state taxes, FICA deductions, Health care deductions, and a slew of other miscellaneous deductions - we may have less than $2000 a month of spendable income.
Conversely, we spend more money than we think we do. When we add up all the nickel and dime fees for things such as parking meters, movies, baby sitters and so on, the amount of money we spend really balloons. A real benefit of setting up a monthly income and expense budget is that if forces us to write down everything so we avoid overestimating income and underestimating expenses.
With a monthly income and expense budget, you’ll be ably to easily monitor your money and begin to eliminate unnecessary expenses. If you tend to be a big spender, a budget will help you to bring your spending under control.
An income and expense budget does not have to be over elaborate, in fact the simpler the better. But all you really need is a pen and paper. The important thing is that whatever method you use, it allows for reconciling your income and expenses at each month end.
You’ll have 2 parts to any budget plan that you create: The monthly income part consists of all anticipated income that you expect to receive in that particular month. This includes salary, dividend investment income, alimony income payments, Social Security, and so on. List the source of each anticipated income followed by the dollar amount. The expense part of the budget plan consists of all expected expenses that you expect to incur for that particular month. This includes things such as monthly rent or mortgage, food and restaurant bills, FICA, wage garnishments, alimony payments, clothing, etc. If you forget any, just be sure to include them for the following month and from then on.
Now you put the budget plan through a trial run. Test if for a month. If you need to adjust it, do so. If you discover an expense that you left out, add it in. Add any extra income that you forgot about.. By the end of the first month, you should have a monthly budget plan that pretty much reflects your actual income and spending habits.
For best results, you need to use the plan not just once, but continuously - every month. At the end of each month, subtract your expense for the month from that month’s income. If your expenses exceeds income, continue to find expenses that you can lower or eliminate until your budget is in balance.
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