How To Make A Successful Budget
Making a budget can be a daunting task. Over the years I have grappled with how to understand my finances, and make sure that I am constantly in control of my future. Along the way I have come up with a pretty good system for managing my finances through a very simple personal budget. These are the Five Steps To Personal Finance Success:
Understand How Much You Make: The first key to making a budget is to clearly understand how much money you are taking home on a month to month basis. To do this you should grab a months worth of pay stubs, income statements, and any other source of income that you can rely on.
A good trick here is to think of a month as the combination of 4 weeks; not as your annual earnings divided by 12. This gives you a little extra wiggle room, and trust me we all need that.
As an example:
Say I make $800 a week after taxes, healthcare deductions, social security, and anything I put away into my 401k. My monthly budget should be based on $2400. This will give me the bare minimum I will take in during any billing cycle. It will also build into my budget an extra month of income at the end of the year.
The biggest pit fall people make is assuming there income based off of there annual salary. To earn $800 after taxes I would need to be making about $55000 a year. In this way dividing that income by 12 months; I could overestimate how much money I have every month by more $1600!
Make A List Of All Of Your Expenses: In this section when I say all I mean ALL. This does not just mean your mortgage or rent, credit car bills, car bills, heat, electric, cell phone and other love letters we get in the mail once a month.
It also means that cup of coffee you have every morning, the dinner with friends you had last week and the gas you put in the car every Wednesday.
Sometimes these expenses can be hard to estimate, so a very simple one month exercise can be done to solve this dilemma. For one month straight simply save all of your receipts for everything that you purchase. This should give you a very good idea of how much money you spend on simply living your life. This number has to be calculated in order to achieve a stable and realistic budget. The idea of a budget is to more easily enable your lifestyle, not to bring it to a screeching halt.
Run The Numbers: After you have a complete picture of what you earn, and what you spend; run the numbers. For most of us in the middle class we can't expect these numbers to be that far off. As long as you are about 20% in the black your lifestyle and spending should be just fine. If your numbers are closer than 20%, or even in the red; it's time to do a bit more hard work.
Making the Cuts: Cutting things that you waste money on is clearly the most reliable way to ensure you are spending less than you make. This is a process and it certainly isn't easy. At this point take all of the receipts that you have compiled from the month before and simply separate them into two piles. One pile is things that you purchased that were truly needed. The other into a pile of things that were bought for pleasure or you could have lived without.
Once you complete this, take a deep look at the second pile. Look at what you spent the most money on and start to rank them in importance to you. Often times the only thing separating you from being on a strong financial footing is buying things on impulse that you don't really enjoy. Figuring out what to cut is an intensely personal process and is not something there can be a guide to. All I can say is that you will be much happier once you do it, and see success in your bank statement.
Earning Smarter: There is another trick to making your budget stable and that is earning smarter. If you are very close to earning enough money to pay for all of your expenses but can't seem to understand why you are always a step behind there is another solution. This solution is one of the most important tenants of small business, but is little used in the formulation of personal budgets. That is the issue of cash flow. Often times we have far to much money taken out in taxes every year and we are essentially giving the government a free loan. This is in stark contrast to putting emergency bills on high interest credit cards to make up for the difference. If you are getting several thousand dollars back in taxes every year but struggling from month to month it is time to start considering adjusting how much money is taken out of your paycheck.
As an example if you get a $2000 refund check, you could have taken an extra $150 home every month to help with your stable budget and walked away with only a $200 refund check. In this scenario you didn't make any more money, you just simply used the money you already had smarter, and by doing so became more personally solvent.
Be careful however not to pay to little, you don't want an unexpected tax bill coming up either. This is a tight rope, but if walked properly, can do wonders for your personal cash flow.
Following this method has helped me climb out of debt and take control of my future. You don't have to earn a ton of money to be financially stable, you just have to use the money that you have well, and understand where your finances are and where they are going. Doing this will ensure personal budget success.
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How To Make A Successful Budget
By: The Happiness Guru
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