Budgeting in Six Easy Steps

Budgeting in Six Easy Steps
by Consumer Credit Counseling Service of Greater Washington

Creating and sticking to a personal budget is a vital part of personal financial planning.

Consumer Credit Counseling Service of Greater Washington offers an easy, six-step method for arriving at a budget you can live with:

Step 1
Determine your monthly income. Take into consideration your payroll deductions (health insurance or other group benefits, income taxes, union dues, pension) and other sources of income.

Add together all income, less deductions. On a piece of paper record the resulting figure as "value a."

Step 2
List your "fixed" and "variable" monthly expenses, such as housing, utilities, food and transportation. Remember to allocate funds for clothing, medical care, child care, personal expenses, recreation and emergencies/repairs.

Break down your annual, semi-annual and quarterly expenses (taxes, insurance) into a monthly figure that can be put aside and withdrawn when these bills become due. Example: car insurance that is $150 every six months needs $25 per month set aside. You will earn interest on these funds and will have no problems meeting all other expenses in the months these become payable.

Remember not to duplicate expenses that may already be deducted from your paycheck.

Add all of your expenses - this is "value b."

Step 3
The next step is to find your "discretionary income" by subtracting your total expenses (b) from your total net income (a). Write this number down on a piece of paper as "value c."

Step 4
List all unsecured debts (credit cards etc.), the monthly payments and the balances. If you don't know your exact debt amount, now is the time to determine it.

Record your monthly total as "value d" and continue with the next step.

Step 5
Some of your discretionary income is committed to the installment debt listed above. Step 5 is to determine if you have any remaining discretionary income after making these installment payments by subtracting your total monthly payments to creditors (d) from your discretionary income (c).

If this figure is a negative number, you are not ready for Step 6 - Setting Goals. Consult a personal financial counselor and work on getting this figure into the positive numbers.

Step 6
It is now time to establish short and long-term goals. Make a list of these goals, using these examples to help you get started.

* Long Term - real estate purchases, future education, retirement
* Short Term - home improvements, new car, travel
* Other Desired Investments - stocks, bonds, CDs, mutual funds

Once you have made a list, determine how much you need to save monthly by dividing the amount of money required to meet each goal by the number of months that you have available to save for it.

fyi
Glen :-)

Budgeting will Build Your Future

The word “budget” can conjure a dreary image of scrimping and sacrificing, so many people avoid the subject altogether. But creating and following a budget can help you to have the money for things you want.

Make a list of all the items, large and small, that you need or would like to have but don’t think you can afford. Many of them may be within reach if you budget well. Think of creating a budget as a financial strategy for your dreams. Doesn’t that sound more appealing—and more manageable?

Your budget is a tool you will enjoy to build your future.

Congratulations on taking the first step. These are the three most important keys to having a successful budget that really works:

1. Make realistic goals you can keep
Don’t put down $0 for entertainment expenses if you know you are going to spend more than that. Be honest with yourself.

2. Learn new ways to manage your money
There are many ways to save money, get better credit, and make your money grow. Here are some tips for how to get started.

3. Maintain your budget
Creating a budget is just the start. The only way it will work is if you remember to update your expenses and make changes during the month to make sure you stay on track.

Getting Started:

The best way to make a budget for the future is to figure out how you spend your money now. First, look at where your money comes from and where it goes. Track all of your income and expenses for a month or two before creating your budget. You'll need to keep track of all of your purchases - from a cup of coffee to movie tickets - by writing them down in a notebook or holding on to receipts.

Write down how much you spend in each category every month. Don't forget to include money that you save each month to help you meet your future goals. Be realistic about your budget, so that it's easy for you to follow.

Create your budget now.

Glen :-)

Work your way out of Debt

Make a budget -- just a list of regular expenses you can work with in the future. And make some form of saving a part of it. Donations are also a good thing to begin right now.

An Emergency Fund is the first step in getting out of debt. It will make your life go easier when those irregular, unexpected emergencies arrive. When your savings gets big enough or a credit card can be reserved for emergencies only -- that will serve as your emergency fund. Keep it there for true emergencies -- not just personal desires. When you must take any money out of your emergency fund -- your top priority becomes replacing that amount back into the fund for later.

Next put some money into savings. Work up to an IRA because you can get increased earnings and extra tax savings. You should be paying taxes by now of course, it's part of a real financial plan. This will help to establish your financial history and will pay off in the future.

But, before doing too much investing -- I recommend investing in a sure thing! Don't believe the news or the financial advisers -- their is only one guaranteed sure thing!

Guess what it is -- and feel how good it will feel to be betting on a SURE THING!

Your one true sure bet is getting out of debt. Here's the best way to do it:

Pay the minimum amount on each of your debts and savings except the one with the biggest interest rate. Pay all you can on that one alone until it's fully paid off!

Tips:

Make a list of all your interest bearing debts.
Include the amounts you owe, the minimum payment and the interest rate.

Change your budget with this plan to get out of debt:

a) Change the Category name for the item with the highest interest rate to "PIG" (Piggiest Interest Grabber).

[note: Not the biggest debt, but the biggest interest rate is the PIG!]

b) Increase that payment amount to the most you can afford by decreasing your other payments and savings to the minimum allowed. Pay off the PIG as fast as you can! (The first one can take years -- but the results will accelerate to the finish!)

c) When that item is paid off -- use those dollars and add in the budgeted amount for the next highest interest rate item. Then work on that new PIG!

d) When you have no more PIGS on the list, put the entire amount into savings.

That's the secret to retirement and savings --
a simple to follow long term plan:

Pay off your biggest interest rate item first
AS QUICKLY AS YOU CAN!

Then cross it off and do it again.


Glen :-)