How To Budget Your Money

Just about everybody knows what their take home pay is but do you know how to budget your money? Not everyone can account for where all the money is being spent. A personal budget is an individual’s cash flow statement. A budget will help you in prioritizing expenses and reducing debt. Your budget is the cornerstone of your financial plan. Here are ten different ways to finally budget your money.

1. Document your monthly income stream. For most people this is easy, they know how much money they take home each pay period. People that are retired know their pension benefits and Social Security payments.
2. Document your expenses. List all of your monthly expenses; housing, utilities, food, transportation, clothing, credit card payments, education, child care, recreation, insurance, health care, charity and miscellaneous spending needs to be documented.
3. Document seasonal variations. In the winter your utility bills may be higher because of heating costs; in the summer you may not have educational expenses but need to plan for vacation. Expenses like auto insurance or real estate taxes may be due quarterly or twice a year. Factor these expenses in your budget.
4. Document your incidental expenses. People often overlook how much money they spend on incidental expenses; the fancy coffee, the magazine, ATM fees, the daily lunch expense at work. If you don’t have a good handle on your incidental expenses track them for a week. Write down your out of pocket expenses for a week and add them up.
5. Computerize your budget. Track your expenses in a spreadsheet or use software such as Microsoft Money or Quicken. You can find budgeting tools on the Internet.
6. Know when your bills are due. Add a field in your budget to track when bills are due. This will help you pay your bills on time and avoid late fees. Paying your bills on time will strengthen your credit score.
7. Know the interest rate on your debt. Add a field in your budget to track the interest rates you pay on your debts. Consider paying the higher interest rate debt off first. You can also call your credit card companies to attempt to negotiate a more favorable interest rate.
8. Build an emergency fund. Be prepared for unexpected expenses. Appliances and automobiles break down; a health care issue may cause a significant unplanned expenditure.
9. Build your savings. Allocate money for regular savings; 10% of your income is a good target for savings.
10. Your Budget is your financial roadmap. Creating a budget is simple; it is a document to track income and expenses. Your budget is the foundation of your financial plan. It takes some initial work to setup a budget but once established is easy to maintain.

A budget will keep your finances on track and you will know in advance when you may have a shortfall. If you can’t cover your bills you need to either increase income or decrease spending. Your personal budget will help you determine where you may be able to reduce spending. A budget is your personal cash flow and debt management tool; create your budget and do your best to stick to it.