subject: How To Budget To Regain Control Of Your Finances [print this page] The first step in controlling your finances, is to create a budget. Good financial planning consists of three basic activities: Controlling your everyday finances so that you have the money to do what you want to do in the future, following a steady course towards long term financial goals such as a home purchase, sending children to college or saving for retirement, and building your financial safety net to offset financial disasters caused by personal tragedies.
Controlling your financial affairs requires a budget. For many people, the word "budget" has a negative connotation. Instead of thinking of a budget as financial handcuffs, think of it as a means to achieve financial success.
Whether you make thousands of dollars a year or hundreds of thousands of dollars a year, a budget is the first and most important step you can take towards putting your money to work for you instead of being controlled by it and forever falling short of your financial goals.
There are some who think they know exactly where their money goes without having to record every little purchase. However, a challenge is issued to them to keep track of every cent spent for one month.
Most people who do this are quite surprised at how much they are spending on $3 lattes or fast food here and there.
Budgeting and tracking your expenses gives you a strong sense of where your money goes and can help you reach your financial goals, whether they are saving for a down payment on a house, starting a college fund for your kids, buying a new car, planning for retirement, paying off the credit cards, or saving for that trip to Hawaii.
Since financial matters are one of the leading causes of marital discord and divorce, getting a handle on your spending, implementing a budget, and saving for the future can also have positive effects on your relationship with your spouse or partner.
Most people think that to have a good budget that they need to purchase software. A good software program can make the job easier by being able to print out graphs and reports, but it is not necessary to use one for a monthly budget if you don't choose.
Many banks are now offering free PC banking and free personal finance software. You simply dial into the bank's computer (or your bank may use web-based banking), and download the checks that have cleared your account, directly into your personal finance software. Then you indicate an expense category for each check.
You can do a basic comparison of budget versus actual expenses by category, or you can enter more detailed information such as investments, assets, liabilities, etc., and print personal financial statements showing your net income and net worth.
I know some people who simply use paper and pencil. If you go this route, the idea is to write down all your monthly expenses and their due dates. Then split them into however many paychecks you get so each bill gets paid on time. For instance, a person with two paychecks per month would list the date and amount of each paycheck.
Then under each check would be a list of all the bills that are due to be paid with that specific check. Then you can adequately see how much money is left over for you to save, or play with. Once you see what are mandatory expenses, you can make other categories such as savings, clothing, entertainment, etc. One other tip that some find helpful is an envelope strategy.
Say you have $200 in your savings account. Keep a record of how much of that money is used for specific things.
For example, $50 might be for auto car, $25 for lunches, $50 for going out with friends, $75 for savings. This way you can categorize your money for what you need it for.
Whether you use sophisticated personal finance software or a couple of pieces of paper and a pencil, the important thing is that you get on the road to financial freedom by starting a budget today. Once you stick with a plan that works for you, you will find how much easier it is to manage your money and plan for your future.
by: Jack Landry
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