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What is Budgeting?

Budgeting is the process of looking at the money you get every month and making a plan for what you would do with the money. How much of it will be used for bills and other expenses and how much will be used for saving. This plan is called a budget and a can be very helpful in managing your money. A budget can help you save for something you will want in the future. Like a car, a vacation or maybe a down payment on or on a house. Or help you to set money aside for an unexpected emergency order to pay off your debts.

Why Do People Make Budgets?

Budgeting helps people  keep track of their money in a number of ways. 1st, it helps people to see exactly where the money goes every month. Sometimes you feel as if faster the money comes to us the faster leaves our hands, and we wonder where our money goes. Budgeting helps us define out exactly what we’re spending our money on, and then we can find ways to spend less in some areas so that we can spend more and other areas and also save money. Budgeting also helps us live within our means so we don’t go into debt.

For example, many people use check cashing services, which charge a high fee for exchanging a payroll or government check for cash. The fee is sometimes a set dollar amount or a percentage of the check to being cached. While this may not seem like a lot of money to spend each time you get paid, they can add up to a lot of money over a year.  Using a budget can help people figure out how much money they’ll spend on on check cashing fees over time, how much money they could save by getting their checks cashed any bank or you can typically cash checks at no charge.

Another reason people use a budget is to help them plan how to get the value out of their money.

Many people find that if it’s written down on paper, it’s easier to control spending. It’s like planning a cross-country car trip. It’s a lot easier to make the. Trip within mouth then it is just get in the car and hope you find your way.  Budgets are light road maps for your money.   They help you plan how to get from one expense. To another without any curing any surprises along the way.

Parts of the Budget

A budget is made up of 2 things; income and expenses. Income is money that you get. Expenses are things you spend your money on. In order to start building a budget, it’s important to make a list of all your income and all your expenses.

Here are some examples of sources of income and expenses:

  • Sources of income
  • Wages
  • Additional jobs and sources of income
  • Over time
  • Tips
  • Bonuses
  • Child support
  • Pension
  • Social security
  • Tax refund
  • Public assistance
  • Disability
  • Food stamps
  • On employment benefits
  • Interested in other earnings from investments
  • Sources of expenses
  • Rent or house payment
  • Utilities renters or homeowners insurance
  • Telephone
  • Car insurance
  • Transportation (bus,taxi)
  • Groceries
  • Dining out
  • Entertainment and recreation
  • Childcare
  • Child support and alimony
  • Health insurance
  • Donations
  • Gifts or support for relatives
  • Pet care
  • Clothing or uniforms
  • Credit court payments
  • Personal ( hair, nails, etc.)
  • Home( furniture, decorations, tools)
  • Taxes
Tracking Your Income and Spending

It is sometimes hard to remember exactly how much money is earned every month and exactly how much is spent every month. That’s why,  when you’re starting to build your budget,, it’s very important for you to collect and what it all pay stubs receipts, bills, bank statements  and checking account registers you have saved.  Anything you have to show money you have received the money you have spent.

Keeping a daily spending diary can be helpful in tracking what items you spend money on to see where you can cut expenses.  You can also use an online banking tool to help keep track  of expenses.  The more accurate the amounts, the better your budget will be.

Building Your Budget

It’s important to ask yourself a couple of questions before building your budget.  The 1st question is who is the budget for?   In some cases, the budget will be just for you,  and you will include  just  your  income (the money that comes to you)  and your expenses (the money that you spend).   On the other hand,  if the budget is for everyone in the family, everyone’s income and everyone’s expenses will be included.

The 2nd question to ask is for how long will the budget be? Budgets can be created to keep track of money for a short period of time, such as a week, or a longer period of time, such as a month, a year or even longer.

How long your budget is for depends upon the kinds of expenses and savings goals you want to track. Most budgets include for expensing saving categories. They are:

Regular Expenses

  • Savings
  • Entertainment and recreation
  • Emergencies( unexpected expenses)

Fixed Expenses

  • Rent
  • Insurance (health, car)
  • Car Payment
  • School loan payments

Flexible Expenses

  • Grocery purchases
  • Utilities
  • Entertainment
  • Personal-care (haircuts, toiletries)
  • Credit card payments

Emergencies

  • Dining out
  • Going to the movies
  • Renting a video
  • Going on a trip or vacation

Money saved for emergencies is important to any budget, because it gives you peace of mind. knowing that if something unexpected happens, you’ll be able to pay for the expense. Financial planners recommend saving 3 to 6 months of your salary to help. Pay for unexpected emergencies.

Sometimes it’s hard to put money aside for something that may or may not happen still,. Money saved for emergencies is a good idea and when an emergency happens, you’ll be glad you are ready for it.

Steps In Creating Your Budget

Step 1: Decide who your budget is for. For you and someone else, or for everyone in your family.

Step 2: Decide how long you want your budget to be.

Step 3: Make a list of all income for the month

Step 4: Make a list of all expenses for the month

Step 5: Keep track of your spending for 3 months. At the end of the 3 months, look to see how you’re spending changes from month to month and where you might be able to cut expenses.

Step 6: Look to see if you are spending more than you are earning

Step 7: Figure out the goals for your money. If you want to say for something, you want to spend less on some items. Also consider expected expenses that might not have been paid in the past few months( for example, six-month auto insurance policy, annual tuition).

Step 8: Make a spending plan

Step 9: Keep track of your actual spending and compare it to your plan at the end of each month

Step 10: Make changes to the budget as needed or as your goals change

How to Cut Costs

It’s hard to have a balanced budget each month or not to overspend. If you find this to be true for you, there are many things you can do to spend less:

1. Get a bank account so you can cash checks without having to pay a fee and a check cashing store or payday lender.

2. Be careful about how you use ATM or debit cards so you can avoid fees.

3. Make a list before you go shopping so you only buy what you need.

4. Use coupons, shopping discount stores, and wait for sales.

5. Try to find cheaper entertainment, or rent movies.

6. Limited dining in restaurants. Eating out can cost a lot more than prepare food and eating at home.

7. Stop using credit cards. Even if you pay the balance in full every month. Stop using credit cards as a way of life.

8. Pay bills on time so you won’t have to pay late fees. Stupid tax.

9. Shop around for the best deals on major perk purchases.

10. Make your lunch and bring it to work.

11. Buy things in bulk.

Helpful Hints for Budgeting

1. Carrying a spending diary with you to write down all your purchases. This will help you see where you are spending your money and will help you find areas to decrease spending.

2. Use a savings account for savings in emergencies money. It’s easier to keep track of your money. You can also set up an automatic savings plan in your bank where the bank will automatically transfer money from your checking account into your savings account.

3. If you are budgeting with other people, make sure everyone understands the budget and agrees to it.   Each person needs to know how much they are expected to contribute, their share of the expenses in who will actually pay the bill.

4. Mark on a  calendar when you need to mail your bills prior to their due date and when you get paid and your savings goals. Put it in a place where you see it every day.

5. If you have trouble remembering the little things you spend money on( snacks, magazines, coffee),  try giving yourself a weekly allowance.

6. Don’t carry extra cash because you will want to spend it. Carry only what you plan to spend.

7. Review your budget each month. Go over all your bills, receipts and statements to make sure they are correct and match your spending plan. Remember that as your pearly change your budget will change also.

8. If you are having a lot of problems making your budget balance, and you’re often spending more than you make,  you may need a personal finance coach. A person with a heart of a teacher. Call Taras the Bull.

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Dave Ramsey’s 7 Steps