Budgeting

To get to your personal bottom line, you will need to work out a basic budget. The online budget calculator we use on our website is a good starting point because it begins with the basic necessities and allows you to build from there and learn how to get debt relief.

Budgeting really has not changed in a hundred years. You need to make enough money to pay your living expenses. If there is money left over, you are in business.

Preparing a simple budget can show how much money you need to cover your basic living expenses and how much would be left over to handle debt or to start some sort of savings plan.

Comparing your income to your expenses will show you whether there is enough money to cover what’s going out and what financial category you are in.

Utilize the following steps to get a better idea of how to begin practicing a budget. Remember – practice makes perfect.

Step 1 – List Your Expenses
Write down all of your regular expenses on the printable Budget Worksheet. Start simple; you can always add to your budget when necessary. Starting with a budget that is inflated with too many categories will tend to make you feel that you can’t keep up. Having a simple budget will help you feel more productive.

You might still feel like you don’t know where your money is going after listing the basics. That’s OK, because there are ways to track your spending habits such as balancing your checkbook, using money management software or online banking.

Any method will work that helps you feel productive and shows you the necessary results. Don’t make it so detailed that your budget will be too difficult to follow.

Step 2 – Write Down Your Income
Write down all your sources of net income (after taxes), including salary and wages, alimony, child support and government payments. Add up the amount you earn per month.

Step 3 – Compare Your Expenses to Your Income
Once you have subtracted your total expenses from your net income, you can see what category you fall into and what can be done about it.

Positive Cash Flow – If your current income is greater than your current expenses, you have a positive cash flow. You can create new budget categories that will help you save and plan for the future, prepare for new expenses or go shopping. Also meeting with an experienced financial advisor can help you pick the right investments for your situation.

Negative Cash Flow – If your expenses are greater than your income, you have a negative cash flow. Don’t be discouraged. This may mean that your instincts were correct and additional income is needed to support your budget. Maybe your budget is tight because of debt and you need to remove some obstacles to be more productive. Whatever the case, you always have options.

The net income chart is useful to compare your hourly wage to the net income wage that would be necessary to support your budget. If too much debt is affecting your budget, contact a credit counselor to discuss ways of working with your budget to reduce your debt.

Three Questions
After you finish your budget compare your budget to the three financial categories listed here.

Productive Category
Productive means that you have plenty of money left over after expenses are paid. You are not concerned about your income, and you want to find productive ways to manage your money such as savings and retirement plans. Meeting with a financial advisor or other professionals can help you plan for your financial future.

Preventive Category
Preventive means you are starting to worry about your financial situation, which may be affecting your life. You are not in a crisis, but may be headed in that direction. Your finances could be causing stress on your family and making it difficult to sleep at night. The Preventive category tends to leave you feeling stuck and unproductive.

Remedial Category
The final category is Remedial. In this situation, your finances are in crisis because there is not enough money coming in to handle existing expenses. An intervention is needed to stop debt collection, repossession or foreclosure.

Ask yourself these questions:
What category do I fall into today?
Which category do I want to be in?
What obstacles may be in my way?

Working with a budget will give you a good sense of where you are financially and how to get to where you want to go.

Being in charge of your financial situation means that you not only understand the game but also what the rules are. Understanding the rules puts the ball in your court so you can make your financial life what you want it to be.

Remember…it’s your money and your life. If you are not in charge of your financial situation, someone else gladly will be. This is rule number one of the game.

Budget Counseling
Remember when you were a child and you wanted to buy some candy at the store? If you had 25 cents and Tootsie Rolls were 5 cents each, you were in business and could walk away with five tootsie rolls. You knew before you went in the store what you wanted and that you had enough money to afford it. That’s the essence of a budget.

Without a budget, many of us just muddle through by trying to stay one step ahead of our bills. To break out of the “living check to check” pattern, we need to know where our money comes from, where it goes and what we can do to make sure it is working for us.

Budgeting is simply tracking. It is a behavior that helps you to track how much you earn and how much you spend. The end result is that you know where you are and where you want to go. Tracking can be done by balancing your checkbook with a pen and paper or by monitoring your accounts online.

After you have calculated what you need to cover your basic living expenses, how much do you have left over? By answering that question, you can think about additional questions such as:

What do you want to do with the budget surplus? Should your budget be cut back because you don’t have a surplus? Do you have some debt bogging down your budget? Can I survive off this budget or do I need to make more money?

Step 4 – Set Goals and Make Adjustments
Use the Setting Goals Worksheet to get an idea of how much you would need to set aside to start achieving goals within your budget. For example: If you want to spend $500 at Christmas, you will need to start saving about $45 per month starting at the beginning of the year.

After you’ve tracked your actual spending and income for a month or two, you’ll be better able to identify where you can comfortably make cuts to start saving money.

Consider this a process of self-discovery. Many people don’t have a clear idea of where their money goes until they start tracking their spending. They are usually surprised at how much they spend in certain categories.

Once you’ve got the budgeting process in place, take an in-depth look at your largest spending categories. Are there ways to reduce your spending in these categories to help accomplish your goals?

Don’t overlook the smaller spending categories either. Sometimes these are the easiest to reduce because the spending may be more optional. Small amounts can add up quickly.

Cutting costs can be very rewarding; especially as you see your savings grow. Following a budget can set you free from the burden of debt and the constant worry that you won’t be able to obtain your financial goals.

Click here to see how your budget compares to the recommended guidelines.