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Six Easy Steps to a Working Budget
Are you having trouble meeting your day-to-day expenses? Fear the landlord at the first of every month? Fretting about a mortgage set to balloon soon? Have credit card or unsecured debt issues keeping you awake at night? Chances are you need to start keeping a budget! If you don't know where every penny you're earning is headed, then you can't possibly get close to examining the root causes of your financial difficulties. By tracking your expenses closely, you can find out things you never thought it was possible to know about your financial health and well being. Yes, it's possible to stop living your monetary life in the dark and break through to a world of responsibly managed wealth by practicing a few simple budgetary principles. If you're ready to get serious about your money and start budgeting, then read on. We can help you get started.
1. Keep Track of EVERYTHING
It's not enough to just compile a basic list of your major outlays each month. Sure, you want to itemize what you spend on your rent or mortgage payment, your car loan, your health insurance and payments, etc... But a proper budget won't work unless you write down and record literally every cent you spend. We're talking groceries, coffee, the tip to the barista who serves your coffee, impulse charitable contributions, that pack of cigarettes you bought after last call and then forgot about -- everything. In a world where your average U.S. Citizen spends $160 a year on high-end coffee, we guarantee you're going to be quite surprised at some of your unexpected outlays. If you don't know where this extra money is going, now is the time to find out. It's the first step on the surprisingly easy road to budget sanity.
2. Online or Off?
It's true, you can construct a successful budget with nothing more than an oversized, lined sheet of paper and a good number 2 pencil -- savvy people have been doing this for well over one thousand years. If paper and pencil will work best for you, then just be sure to store your budgeting paperwork securely and conveniently as you'll need daily access. That said, keeping your budget electronically is a perfectly acceptable option as well. You can look online and find a plethora of excellent budgeting tools. Pick whichever one looks most appealing to you, but keep one thing in mind: Don't get caught up in the special features, bells and whistles of budgeting software. Your goal here is very simple: tracking and planning your personal expenses to better understand your financial situation.
3. Learn From Your Expenditures
Don't even think about trying to plan out your budget until you've analyzed every penny you're spending for a minimum of 30 days. 60 days gives you a better overall picture, but if you must get started now, one month will be acceptable. (Just don't forget to keep tracking after 30 days are up. You're keeping track of your spending from now until you live on a desert island!) Go ahead and add up what you've spent. You'll see major outlays like rent, groceries, and debt payments. Set these aside and then look at your additional expenses: The snack-craving-induced candy bars, the impulse furniture buys, the video game purchases -- all of it. Now, add these expenditures to your major outlays and look at the figure. Compare it with your total monthly income. If you're having problems meeting your expenses, are in debt, or both, then your spending figure is going to top your monthly income every time.
4. Trim the Fat
Now you understand: You're shelling out 105, 110, even 120 percent of what you earn every month. This is unacceptable and unsustainable and must be remedied. You should be spending less than 100 percent of your monthly income. Ideally, you'd spend just three quarters of what you make and then use the rest to pay down your debt or begin a savings plan. When you spend less than what you take in every month, you're getting ahead of the majority of Americans and getting into the black. It won't be easy. If you're a shopaholic it's time to block yourself from EBay and avoid the mall entirely. If there's major shopping to be done, send your spouse or a friend. Really. If you're a drinker, it's time cut back on the top shelf stuff and learn to love the well. If you love good coffee, Maxwell house is not going to kill you once you get used to it. After your finances stabilize, you can reward yourself by indulging an expensive habit every now and them within your budget.
5. Focus, Hard
You've made it 30, 60, even 90 days, itemized all your expenses, and projected a budget that allows you have some money left over at the end of the month. Now is not the time to get complacent. Keep tightening the belt and monitoring your outlays with laser-beam-accuracy. If you go over your budget for a month-long period, don't panic: Just be honest with yourself and make sure you make up for it in the next 30-day cycle.
6. Get Support
Let your spouse and your family know what you're doing. It might be embarrassing at first, but eventually they'll learn your serious about managing your finances like a pro. Being open with those close to you will help you through tough times and allow you to enjoy your coming financial independence even more.
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