Budgeting & Savings

Learn Budgeting Basics For Successful Money Management

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Learning the skills of money management can help individuals in so many areas of life. For example, when people want to save up money to purchase their first homes or to return to school, they can harness the power of budgeting. Having a budget also helps individuals to manage their income on a daily basis. Getting these basics down will help individuals to lead a more healthy financial life.

Know Exact Earnings –

Starting a budget involves an understanding of exactly how much money is coming into the household each month. For a precise number, people are likely going to have to gather recent pay stubs of all household members who financially contribute. It’s essential to use the actual earnings. In other words, don’t include incomes before taxes after taken out. Income after taxes is better because it provides a more accurate sense of how much money the household has to use.

List All Expenses –

Using a budgeting tool, such as a spreadsheet, is a smart way to bolster money management. On this spreadsheet, list all of the household expenses and how much they cost. Of course, as prices rise, this list will need updates. Don’t guess at what bills cost. Pull up statements online or dig out recent bills from the filing cabinet for an accurate system.

Tackle Debt –

The budget should also account for debt. While confronting the total amount of debt that an individual has can feel jarring, doing so is necessary for the success of the budget. Once the total is calculated, add this line to the budget. Paying more than the minimum amount each month is ideal to avoid massive interest payments in the long term. Looking at these figures on an organized budget can reveal that debt management programs, debt relief, or debt consolidation practices, such as taking out a low-interest rate loan, might be a smart idea. You should look into a Debt Management Program (DMP) before taking out new debt in the form of a loan. Debt consolidations loans are just moving the debt from one place to another. They don’t really address the problem or issue. A DMP can help you get to the root of the problem.

Plan For Entertainment Spending –

The budget should also include money for entertainment. Under this category, individuals might place vacations, regular trips to the coffee shop, dinners out at restaurants, trips to the amusement park, and so forth. What’s important is to know how much money is available for these endeavors each month. Once that amount is established, do not exceed it. Going over this budget line is a problem for many people, and this issue can lead to the acquisition of more credit-card troubles.

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Remember That Emergencies Happen –

Allocating all of the extra funds to entertainment is a bad idea because emergencies can happen. Budgeting for emergencies is important. One option is to put aside a set amount of money for emergencies and a set amount of money for long-term savings. A smart practice is to have money automatically transferred from a checking account to a savings account on payday. In other words, seeing the money might tempt account holders into spending it before they have the opportunity to transfer it. Automatic transfers make this situation easier to avoid. Also, people can choose savings accounts that limit the number of outward transfers and withdrawals each month so that they are not continually withdrawing money from the account.

More Tips & Helpful Information About Budgeting –

There is a reason that businesses use receipts and record books to carefully track how much money is coming in and going out. Keeping organized will allow you to make future financial decisions on full information.

If you have problems with debt management, it might seem to you that no matter how strict you are with money, it just disappears. At the end of each month, you might be fretting because you can’t pay your bills, and you don’t understand where all of your money went. Perhaps you have thought about enrolling in Advantage CCS credit counseling services, either in-house or online. No matter what your situation, you can personally benefit from sticking to a monthly budget as part of your debt management plan.

Impulse purchases are one of debt management’s biggest foes. We live in a culture where we are bombarded with media advertising all the time. Wait for the bus, and you’ll see an ad for a new purse. Stand in line at the grocery store, and chocolate, bath sets, and household goods tempt you. Hail a taxi, and you’ll see an ad for a Rolex or a pizza atop the vehicle. American culture dictates to us that we must buy, buy, and buy.

Eliminating impulse buying is the first step of a sound debt management budget. You don’t need to get a latte because you walked by a coffee shop. You don’t always have to grab Indian food with your co-workers when the tuna sandwich sitting in the fridge in the lunchroom will do just fine. You don’t need four new magazines – you can read them at the library. Keep track of your impulse buys for one week, and you’ll likely find dozens of non-essentials on which you spend too much money.

After identifying and eliminating non-essential purchases from your budget, it’s time to examine your monthly spending habits in greater detail. Sit and think about everything you are spending money on or buy in a month.

Some items your list should include are:

  • Rent or mortgage payments
  • Gas and electric bills
  • Telephone service, Internet service, cable TV
  • Medical bills and/or health insurance payments
  • Transportation costs and repairs
  • Groceries
  • Household necessities
  • School tuition or college loan payments
  • Entertainment and non-essential items
  • Credit card bills
  • Monthly saving set-asides

Add up your total monthly spending figures. Now, determine your monthly income after taxes. Compare the two figures. If your numbers are close, or if spending exceeds earnings, you’ll need to enroll in credit counseling and work out a debt management plan.

Steps to building a realistic budget:

  • Setting goals – Goals for your money will help you make smart spending choices. Ask yourself: “What do I want my finances to look like in one year?” Decide what’s important to you and then start there. Goals will help keep you motivated, as well.
  • Categorize income and expenses – Review your billing statements and paychecks closely. Identify your net income and gross income. List all of your monthly expenses and the periodic expenses that you know of like your water/sewage bill, property taxes, etc.
  • Separating Wants vs. Needs – Ask yourself: “Do I want this, or do I need it?” Set clear priorities for yourself, and the decisions become easier to make. Decide what truly belongs in your budget and what you can “live without” for a while.
  • Create the budget – Use our free budgeting tool (Online Budget Advisor) to create your budget in a few minutes. Make sure that you are not spending more than you make. You need to learn to live within your means, or you’ll be in debt forever. Balance your budget to accommodate everything you need to pay for.
  • Analyze spending vs. income earned – Match your spending to when you receive your monthly income. The worst thing to do is have something big like your mortgage payment due before you even get paid that month. Decide ahead of time what you’ll use each paycheck for. This will protect you from going into debt further because you won’t rely on credit to pay for your monthly living expenses. This is how most people end up in debt and needing our assistance.
  • Don’t forget to include periodic expenses – You know that things will “just come up” – unexpected school expenses, new water heater, or a new refrigerator. Set money aside to pay for these expenses so you can afford them without having to use a credit card.
  • Saving strategies and the future – Getting on track with a budget can take a month or two. You’ve lived all this time without a spending plan, so give yourself time to adjust. Don’t be afraid to ask for help if things aren’t falling into place. Contacting a certified credit counselor at a Non-Profit credit counseling agency could be a lifesaver!

These budget-based basics can help people to get started on healthier financial existences. Once the basics are mastered, individuals can move on into more advanced financial-planning opportunities, and they can begin to see even more significant changes in their finances.

Budgeting doesn’t have to be hard or take up all of your free time. With free online tools such as Online Budget Advisor or Mint.com, you can create a budget within a few minutes and find out where your money is going every month.

A budget will show you where you can make cut-backs to free up some money. An example would be to eat out less or start bringing your lunch to work instead of going out to eat for lunch. Small sacrifices like the ones mentioned will help you save money, and you can decide to either pay down your debt or save it for a rainy day.

Author: Lauralynn Mangis
Lauralynn is the Online Marketing Specialist for AdvantageCCS. She is married and has two young daughters. She enjoys writing, reading, hiking, cooking, video games, sewing, and gardening. Lauralynn has a degree in Multimedia Technologies from Pittsburgh Technical College.