Saving money is difficult and the financial pressures we face today add anxiety to our struggles. Without a spending plan, saving for a secure future is nearly impossible. If you want to save for retirement and keep your good credit, you need to start with a budget that will allow you to manage your money effectively. While this is no easy task, you will reap the rewards of financial freedom and enjoy a less stressful life.
Why Budget
Your budget is a road map to your financial future. Keeping a budget allows you to plan for major purchases, college education and retirement. Creating a budget involves figuring out what your available income is and then deciding how you will spend that money to reach your goals.
A good budget will help you increase your savings and avoid spending impulsively. Budgets also help you figure out what expenses you can reduce and how you can repay your debts. The best thing about a budget is that it will help you find out if you can finally afford that new iPhone you have been craving.
Budgeting Guidelines
Every household is different, so use these tips as guidelines to help you decide what is best for you. To make your budget successful, you first need to make a plan that is practical and attainable in your particular circumstances. Creating your budget will allow you to be in control of your money, rather than always chasing after the next paycheck to pay your current bills.
Get a File System
The first step in creating your budget is finding a filing system that works for you. You will need to hold onto your receipts and financial statement so you can understand how your money is spent. A filing system can be just an old hatbox, or you could have detailed folders in a file cabinet. You might want to keep paperless records on your computer so you never worry about losing your paperwork.
Allocate Your Budget
When planning your budget, the money you allot to each spending category should fall under the following percentages, but will have to be adjusted to come to the 100% total.
Category Percentage
* Unsecured (credit card) debt 10 – 20% * Mortgage and Housing Costs 20 – 35% * Groceries and Eating Out 15 – 30% * Car and Fuel Expenses 6 – 20% * Electric, Phone and other Utilities 4 – 7% * Clothes 3 – 10% * Miscellaneous Pocket Money 1 – 4% * Savings 5 – 9% * Personal and Beauty care 2 – 4% * Healthcare 2 – 8% * Insurance (life and disability) 4 – 6%
Housing will always take the biggest chunk of your budget. Do not forget to include the cost of your mortgage, taxes and insurance. Home maintenance is another important cost you must consider.
When looking at Car and Fuel Expenses, do not forget costs associated with car ownership. These include inspection costs, taxes, maintenance and repairs should something go wrong.
Pocket Money is one of the most difficult categories to control. If you and your spouse do not agree on limits in advance, and stick to those limits, spending can get out of control and take away from your other goals.
Personal care expenses will be those you spend on makeup, haircuts, nails, etc. Healthcare expenses should include the cost of your health plan, co-payments and medications.
Cut Expenses
Once you have assigned the money to cover your needs (housing, food, clothing, healthcare, and savings), see how you can set up the remaining budget items to pay for your wants (personal care, disability insurance, pocket money, iPhone).
Your budget will help you see a complete picture of your financial status and will reveal ways in which you can restrict spending to create more money for the things you want to have in life.