Budget preparation – With today’s skyrocketing prices for everything, it makes good sense for everyone to have a good budget preparation. These useful tools are not only intended for businesses to control spending. They also help individuals know how much disposable cash they have. What is disposable? It’s how much paycheck is left over after the essential bills have been paid, such as rent and utilities. These are bills that if not paid, the amenity can be shut off or taken away.
It’s not always easy to know how much disposable income an individual has, but there are certain expenses that are constant and can be tracked. Rent and cable, for instance, are usually fixed, while electricity can fluctuate from month to month. The best way to handle keeping track of variable expense is to take a year’s worth and average the total amount. For instance add up all months and then divide by 12 to get a monthly average.
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Quicken and Mint help with Budget Preparation
The best thing that can be recommended for anyone who needs to keep track of finances is to use Quicken. It’s relatively cheap for their basic version, and an excellent tool for finding out how much money is spent, making tracking it all that much easier. There are also free Quicken alternatives that can be tried if spending money is not an option.
Another free option is to use Mint website, which has partnered with Quicken to give users a chance to instantly track their finances. Of course, this only works for those who use banks with online access. Since this applies to the majority of bank users, more and more people are going the online bank route. The only drawback is that users must give their private banking information to Mint in order to be kept up to date on their spending. This can be a major turnoff for some.
The manual way of keeping track is to use a spreadsheet (i.e. Excel) on a home computer and a checkbook register. Start the spreadsheet with how much net earnings are brought in (don’t use gross salary, since that is before taxes are taken out). Then subtract rent, electric, cable, utilities, phone, and anything else that is paid every month. Going by how much was spent on groceries, an average can be estimated for that as well. Once all that is taken out, the rest is disposable income. This is what can be used to either be saved or spent on entertainment or luxuries.
Budget Preparation Only Help if They are Followed
If the remainder is negative, a bigger issue must be fixed. That means that the individual is spending beyond his/her means. A second job must be found and/or some expenses must be cut out. Amenities that are not essential are the first to go. Many people have things on their cellphones or cable bills that are unnecessary. Make sure you use all your minutes on that phone. If not, drop it to the lowest available number. That will save at least $10 to $20 a month. Getting rid of premium channels can drop a cable bill by over $20.
Every little bit helps. Sometimes price shopping with different companies will lighten the load, or even threatening to leave current providers will get you better deals. There is no reason to let things like this put a drain on an individual’s finances.
Money Tips: Making a Budget
In these times of economic hardship, it is essential to stretch your dollar as far as it can go. Yet people still manage to get themselves in over their heads with unmanageable debt. These problems can be dealt with by a few common sense methods that surprisingly tend to be overlooked.
Know your Income
First off, the most important part of budget preparation is to know how much money you have coming to you and when. If you are working on an hourly rate, your paycheck may vary. In cases like that, make sure to give yourself a hundred dollar cushion; so you don’t overextend your budget by planning on something you aren’t guaranteed to receive. Once you are absolutely sure of a stable number, you can start planning your expenses.
Priority Spending
This is the part that people seem to have trouble with. When you get your paycheck, you tend to see a large number and start spending it frivolously. While it is fine to use your money on entertainment and eating out, you have to be sure you have enough money necessary to do so. You should get out of the mindset of what you ‘want’ to spend your money on, and focus on what you ‘need’ to spend your money on.
Gather up your bills and add up their monthly amounts. Take into account the times for which the bills are due, for if you get paid twice a month; you can set up a system where you can draw money from separate paychecks to pay for the items closest to its due date. After figuring up what you owe, prioritize which bills are more important. You should, of course, pay for all of the bills in order to keep your credit score up; but if you can’t manage to pay them all, you should know which are more valuable. For example, keeping your television or internet service is not important if you get evicted from your house.
If your monthly bills exceed your monthly income, you need to rethink your lifestyle. In other words, you might want to cancel any services that are not essential to your basic needs. Such services would include cable, internet, gym memberships, Netflicks, etc. Even phone plans could be a major expenditure if you go for the fancy cell phones with internet capabilities. If after cutting off all of the unnecessary services you still can’t pay your bills on your income, you will have to look into a higher paying job or lower rent housing. There is no sense staying in a situation that your budget preparation can’t handle, that would put you in a death spiral of ever increasing debt.
Savings Exist For a Reason
Banks offer both a checking and a savings account. The checking is for spending money on needs and wants; the savings is for having a nest-egg to gather interest. It would be wise to take advantage of this feature. If you have managed your budget properly so that your bills do not exceed your income, you should have some left over for spending money. Do not just spend it all for fun, instead figure up at least ten percent and put that money into your savings. Personally, I set aside fifty to a hundred dollars a month for my savings. Once that money is in your savings account, do not touch it.
The reason that money is in there is to draw interest from the bank, the more money you have in there, the more money the bank will pay you to keep it. However, the most important reason it is in there, is because of unforeseen expenses. If your plumbing breaks, if your car burns out, if you have medical complications, if a monthly bill inexplicably increases past your budget; you will at least have the money set aside to get you out of that situation.
Floating Money
Now that your essential bills and savings is set up, you may have a bit of free money left over. Pay attention to this amount, do not go exceed it. If there is an item that you want to buy, but cannot afford it; set aside a portion of your free money. This is called floating money, it is a fund to carry over into the next month to add to your free money so that you might afford the item next time. Remember, any money that you don’t spend on a comfort now is money that can be spent on a greater comfort later.
Credit Cards
If you are not a diligent follower of a budget and have collected massive debt on yourself, then I do not recommend credit cards. Credit cards are a way to spend money that you do not have, and this is a great temptation. The interest rate and late fees are enough, in the long run, to make it not worth using them. If you have credit cards, I suggest you stop using them, and pay off the outstanding bills as soon as your budget allows. You will notice a substantial change in your spending money once the card debts are wiped from your budget.
