Budgeting Know-How: Budgeting Tips and Strategies


You Have to Save to Spend: Budgeting 101

Most financial experts recommend that you establish a budget in order to determine how to best spend the money you earn. Of course, a budget only works if you stick to it. Therefore, it is important to create a realistic budget that works for your family and the way that you live your life. Here are some tips to help.

Getting Started on Budgeting

The first step in getting started in the budgeting process is determining what you are currently spending. During the course of two weeks, track your spending by writing down everything you purchase. If you eat out, shop at the grocery store, buy gas or have any other expenses, track it carefully to gain a realistic picture of your spending habits.

Next, compare all of your expenses to the income that you earn. When creating a budget, you should list not only your regular expenses, but also irregular expenses such as holiday gifts and annual bills. You need to account for all spending in order to make sure you have enough to cover your fixed and non-fixed monthly expenses.

If you are earning more than you are spending, you should have cash left over to allocate toward savings and other goals. Of course, even if you are earning more than you spend, you may still wish to evaluate your spending to see where you can make changes in order to use your money more wisely. If you are earning less than you spend, making cuts is essential to avoid going into debt and enabling you to build a savings fund.

Account for Every Dollar

When you set a budget, look not just at how you are spending your money but what you want to do with all of the income coming into your home. If you want to save for retirement and reach other short and long-term financial goals, then you need to build these goals into your budget as well.

Many people find that using a zero-based budget is the best approach. A zero-based budget means that you make your budget-expenses add up exactly to your income. Every dollar is given a job in your budget, with some of those dollars going into various savings accounts.

Even if you set a zero-based budget, you should anticipate unexpected expenses. Creating a “slush fund” in your budget, or a line item where you set aside a certain amount of money for surprise expenses, is a good way to avoid raiding other money sources (such as credit cards) when an unexpected expense arises.

Budgeting Solutions

Once you set a budget, stick to it. There are different methods to help you stay on track.

1.   Envelope-based budgeting involves labeling envelopes with different categories of spending such as groceries, eating out, gifts and fun money. Place the cash you want to spend in each category into the appropriate envelope each month and then use that cash for its intended purpose during the course of the month. This strategy will force you to live by your budget since once the envelope is empty, you cannot spend more on that item until next month.

2.   Automatic budgeting takes the thinking out of budgeting. Any money that is to be saved or used for specific purposes can be transferred automatically into the appropriate account or to pay the appropriate bill as the cash comes in. This way, your budget will work on its own without you having to do much to ensure that you are sticking to your financial goals.

Your financial needs, income and budget may change and evolve over time. Set aside time every few months to rework your budget to make it function better for you so that you can keep on top of your finances.

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