Personal Finance – Easy and Effective Budgeting

Personal Finance – Easy and Effective Budgeting

Have you ever noticed that no matter how much money you make, you always end up broke? This is what happens when you simply spend your money without managing it. You don’t have to be a financial genius to master the art of personal finance though. You only have to follow these steps to create a simple, yet effective budget for your household income. Next thing you know, you’ll actually have that nest egg you’ve always dreamed of. Here’s what you need to know.

Choose Excel
Excel spreadsheets or similar programs offer a no-hassle method for tracking your expenses and income. Simply form a simple budget sheet and enter your information to see it in a whole new light. Excel will even take care of the math part. It’s simple and user-friendly and any questions you might have can be answered in online forums.

Determine how much money you bring in per month after taxes. Enter this dollar amount into your spreadsheet. This provides a figure for all of your expenses to come out of.

Fixed Costs
A fixed cost is any monthly expenditure that is consistent. Bills, such as rent, house payment, car payment, insurance, and (most) utilities are all fixed costs. These are going to come out of your income every month, so you may as well look at it as money that’s not there.

Variable Costs
A variable cost is an expenditure that can change depending on your behavior. These costs include groceries, entertainment, clothes, and dining out. Almost all of these numbers can be lowered, if needed. Therefore, this category is where you’re going to make most of your spending cuts. Being honest about your variable costs is important to changing your spending habits.

Set Goals
Set a goal to decrease your spending for the month. This can be changed from month to month to either save more or allow for extra expenditures. Most of your goal setting will be done within your variable cost category. Try cutting down your variable costs by $50 one month and then increase it next month.

The most important part of budgeting is making sure you record everything. Keep your receipts to ensure you don’t miss an expense. These can be later recorded in your spreadsheet. Also, don’t procrastinate. If you know that it’s something you repeatedly buy, then include this as a fixed expenditure next month. It’s important to monitor your spending closely or else, before you know it, you will have gone over budget. Record spending nightly, so you always know just where you’re at.

Don’t simply throw numbers onto your spreadsheet. Make categories to narrow everything down. For example, under the “car” category, have a heading for gas, maintenance, insurance, and payment. This way you always know exactly where your money is going on both a macro and micro level.

Remember to Save
Always direct a tentative amount into your savings. Quite frankly, unless you have a nest eg already, anything over your necessary budget needs to be saved. This money is not free to spend on whatever you choose. It may be hard to sacrifice certain pleasures, but after a few months of biting the bullet, you can likely have the best of both worlds in that you’ll have a cushion AND be able to enjoy your weekends off!

Small Sacrifices
Always be sure to have enough to set aside each month for even a very basic insurance plan, so that no matter what happens, you have a safety net. This means you want the big 3 covered – home, life & health! Small sacrifices now can pay big dividends down the road. If you can only  choose one, health insurance is the way to go, especially if you don’t live anywhere where your home is in immediate danger of the elements & you’re not old enough that you expect to die anytime soon. $100 a month may seem steep, but one trip to the emergency room without insurance will likely cost that amount many times over, and if you require any kind of procedure, you can kiss any hope at savings goodbye. Trust me – an affordable health insurance plan is your financial friend, even if it’s quite basic.

By practicing these steps, anyone can take control of their financial situation. By closely tracking your spending, you will be much more aware of where your money is going and where you can make cuts. Saving money will be much easier once you get the hang of your budget, and it’s definitely a snowball effect. A month of saving will make the second month easier, and after half of a year in the habit, you should be sitting pretty.

Author Jason Harter received his degree from one of the Top 10 Best Online Masters in Finance Degree Programs. Because of his degree his is very skilled in all that is finance and budgeting.

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