9 Essential Budgeting Practices You Might Not Be Following
Christmas decorations are already hitting the shelves. Combine that with Thanksgiving and the fact that Halloween has surpassed Easter as the Number 2 most expensive holiday for families and you’ve run into the trifecta of budget busters…..The Holidays. A great way to approach these impending events is to get back to the basics of budgeting.
Only one quarter of Americans feel well informed enough to manage their household finances. That’s no surprise, balancing all of the expenses that we all deal with is a daunting task. Getting back to the budgeting basics can help you (and Mary) save money and have stress free holidays…all three of them. We offer some helpful tips to help you get started:
Identifying your goals. Determine your short-term and long-term goals. Do you want to purchase a home next year, take a vacation, pay off your student loans, or become debt free in less than five years? What is it that you want most? Identifying your financial goals will help you determine how much money to set aside each month in order to achieve your goals within your desired time-frame.
Determine your monthly income. Make sure net (after taxes) income is used, and don’t forget income can come in many forms. Some frequently forgotten sources of income include rental income, investment dividends, and child support or alimony. Can you think of any other sources of income you receive every month? If you have an income source that is not paid monthly, total how much you receive over the course of the year and divide it by 12. This will give you a monthly net income figure to use in your budget.
Always pay yourself first. Set a savings goal of at least 3% to 5% of your gross income. Put this amount into your company’s 401(k) or a savings account every time you are paid and include this amount as a fixed expense in your budget.
Track all your expenses for a month. Keep a little notebook in your purse or pocket to record all transactions.
While keeping track of expenses, remember that there are two different kinds. Fixed expenses don’t change from month-to-month, like mortgage payments, rent and vehicle payments. Variable expenses are different amounts every month, like food, utilities, and entertainment expenses. As you list your expenses identify each as fixed or variable.
Remember to include your periodic expenses. These are expenses you do not pay every month. Vehicle registration and licensing, health and car insurance, and medical co-pays are all examples of periodic expenses. Figure out how much you pay for these periodic expenses over the course of the year and divide that number by 12. This will provide you with the total amount needed to save every month in order to pay for these periodic expenses when they arise. Consider putting this money into a savings account until you must make the payment.
Subtract your total monthly expenses from your total net income. Do you have a positive amount (in the black) or a negative amount (in the red) left over at the end of the month?
Analyze and make adjustments to your budget. Even if your budget is “in the black” try to reduce or eliminate your expenses.
Have fun! Budgets are meant to improve your quality of life, not hurt it. Although they might sometimes keep you away from things you want, budgets can be a rewarding and even enjoyable part of your every day life! Try finding ways to make budgeting fun, like putting some change in a jar for every unnecessary purchase you say “no” to and, when the jar fills up, treating yourself to a nice dinner. After all, if you can find ways to enjoy budgeting then you’re more likely to stick to it!
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