Sep 24 2007

Tips For Creating A Budget And Sticking To It

Posted by bpaul in Money Management
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There are lots of ways to create a good budget. One of the best ways is to write out everything you earn and everything you have to pay out each month. This simple method will get you started on creating a budget and figuring out where all your hard earned money is going!

Personally I think we over analyze our budget before we put anything on paper. Before you go buy Quicken on Microsoft Money or any other budget software, just grab a pen and some paper. I will show how creating a basic and detailed budget doesn’t have to be a long and tedious process.

Just follow these easy steps, and you will be one step closer on getting a handle of your finances.

1. Work out all your ‘fixed’ (I must pay) costs. These are things that you must pay for in order to live, like your mortgage, loan repayments, utility bills such as electricity and most other monthly bills that are fixed every month. For some people the cable bill will be on this list because they can’t live without TV….(myself included)

2. Next work out all your ‘essential costs’, such as food bills, how much you spend getting to work etc. Once you have worked this out, what you are left with is your disposable income. This is the income you have left to pay for things that you could do without like clothes, leisure time or a coffee at Starbucks.

3. Then list all the monthly ‘consumable costs’ you want to pay for on a monthly basis like a shopping trip to buy birthday gifts, or a hobby. This can change month by month depending on what you have to pay for or you can budget every month a certain amount to pay for things such as clothes and shoes or a holiday at the end of the year. When you create the list of the consumable costs, the budget becomes almost useless if you are regularly buying things you haven’t budgeted for such as regular trips out to restaurants or the movies. All these things should be budgeted for and you will know when you have accounted for everything because you will be able to predict you bank balance very easily.

More Tips To Remember For Creating a Good Budget

Don’t plan to spend all your money every month because this will mean you won’t be prepared for unexpected costs, such as your car breaking down, or paying a plumber to fix a burst water pipe. Try to save every month to account for a sudden change in your circumstances and also to prepare as early as possible for you retirement. The earlier you start, the more you can save. Try to be disciplined and stick to your budget. A budget will only work if you are willing to stick to it, and check it monthly. If you stray from your budget then your money will start disappearing from your bank account.

Finally, keep track of your monthly costs and every now and again look to see where you can save money by cutting out things you no longer need or want. It can be surprising what we pay for when you actually look at it.