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Personal Finance Tips



June 2014



How to Create a Financial Budget

Posted in Saving

The recent recession has erased 8 million private sector jobs in the US according to USA Today. With today’s economy, it is important that for every household, one should learn to save and create a budget. It is not enough to lean on your one income. Rather if you have a choice, create other sources of income to ensure you will have spare money just in case worse comes to worst in the economy. Budgeting is part of the plan – a difficult plan to stretch your money. Yet, it is essential because it will be for your benefit in the end. Here’s how:

Gather all financial records

Before you can actually modify your budget for a month, you have to gather all your receipts and any form of records. These will be your baseline on how you actually spend your money for the last few months. Group these records according to month and sum it all.

When you see you are spending too much than you earn in a particular month, it’s time to trim down your expenses and make a financial budget plan. And from now on, every time you spend money, keep all your receipts for further accounting in the future.

List down expenses

There might be some expenses that you have no record of. Again, you have to list them all down whether it be a one-time expense or a monthly basis.

  • Divide fixed and variable expenses

You have to know if you have a bigger amount spent whether on fixed or variable expenses. Fixed expenses would include your monthly bills like electricity, water and phone bills. On the other hand, variable expenses are those that would change – whether it be a monthly expense or a one-time expense. This would include your food, shopping and health care expenses.

  • Add all expenses per month

After you have classified your fixed and variable expenses, try to sum the amount of each expenses according to type. If you do not remember exactly the figures, a range will do. It is important to do this to be able to know how much money you really need to have each month to be able to pay your bills and have a spare amount for your wants.

Create the budget

After you know your expected expenses for the month, compare it with your monthly income. Can you sustain all your money-spending with the amount you are earning per month? If yes, then good for you.

But even if you do, you have to ensure that you have a good spare of money to be saved in the bank. Do not live for today only. Ensure that you can have savings that will let you live for at least 3 months without income.

Budgeting your money really depends on you. You can either use half or 75% of your income per month to all your expenses, if it’s enough. Then use, the remaining money for sure savings in the bank. Break down that allotted budget for important or fixed expenses first based on your list of expenses per month. All that’s left should be placed for the variable expenses only.

Modify expenses

The two types of expenses are both modifiable except that fixed expenses can’t be totally erased in the budget. Variable expenses can be omitted if you are willing to sacrifice a little bit for you to save money.

For your fixed expenses, you can trim down what you’re used to spend by cutting down electricity and water usage at home. Minimize phone bills too by cutting down phone calls everyday. For your variable expenses, you can actually save food expenses by minimizing eating out everyday. You can either move dining out on weekends only or just buy groceries and cook food instead.

Making a financial budget is easy. What is hard is for you to sustain that budget every month. Always remember to not overspend. Do not put money out more than you earn.

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