Creating a Budget
by Sarah Russell
Creating a budget sounds about as much fun as pulling teeth, but in the long run, having (and sticking with a budget) will help you achieve your financial goals. Think about the things you�d like to have in the future. Maybe you�d like to settle down and own your own home, or continue renting and purchase a really nice car. Now think about the current state of your finances. If you feel like you�re constantly stretching to pay each bill and stay on top, you need a budget to help you get control of your money.
Talking to a financial planner is a great way to get your budget together, but these meetings can be costly. If you can�t afford it, don�t worry � putting together your own financial plan isn�t that difficult. The first step is to gather information on all your financial commitments. Make a list all the things you must have to live (food, shelter, etc) and the debts that carry a penalty for missing a payment. This may include some or all of the following (or others):
* Rent or mortgage
* Utility bills
* Car payments
* Groceries
* Cell phone bill
* Credit card payments
* Student loan payments
* Child Support
* Auto insurance
Sit down with a calendar and a calculator in front of you. Mark on calendar the approximate date when you have to pay each specific debt. Total up the cost of each debt (look at your past bills to find an average if necessary) to get an idea of what your commitments are each month. Compare this with your monthly take-home pay. Obviously you�re in better shape if your financial commitments are smaller than your salary. If not, take a hard look at the lifestyle you�re living. Are you living in a house you can�t afford or driving too nice of a car? Eventually, living beyond your means will catch up with you.
Think back to your goals for the future. Use tools on the internet to estimate what the payments will be like on your dream house or car, or how much you�ll need to set aside to pay off your debt or retire early. Go back to the total of your monthly debts and see how realistic your goals are. Will you need to lower your expenditures or dramatically increase your income to meet your goals? Start to look the expenditures you make outside of your commitments. How often do you go to the movies or eat out at nice restaurants? Do you drive short distances that you could easily walk or bike? It might be helpful to keep a spending diary for a week or longer. Use it to record everything you spend money on and you might be surprised with the results.
Your spending diary will help you get an idea of where you can cut back in order to save more for your goals. But don�t be too stringent � telling yourself that you won�t spend any money outside of your major commitments works as well as saying you won�t eat any more chocolate cake! Be realistic, but try to find a happy medium that works for you. Sticking to a budget takes discipline � don�t be surprised if you occasionally break your own rules. Keep your goals in mind each time you whip out the credit card and soon you�ll be on your way to financial freedom.
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