Budgeting is the first step on the path to financial freedom; take the time to set a budget and stay within it! In addition to budgeting, debt settlement programs like ours can help you to have a more secure financial future.
Creating a Personal Budget
Creating a monthly budget is the first step in helping you secure financial freedom. Although tedious and often times intimidating, budgeting is an essential activity that many of us need to do to ensure we are not spending money we don’t have. When you sit down and create a budget, you gain a better understanding of the proportions of your monthly income that are dedicated to various expenses. Building a budget can be stressful, but the results are often eye opening. Sticking within the budget you create will benefit you in both the short and long term. The following will outline three easy steps to help you create your personal budget.
Recording Your Income
The first step in creating your budget is having an accurate estimate of your monthly income. For those who receive a salary, this may be an easier process than hourly employees, or those on commission. If you have unpredictability and fluctuations in your income, a good way to estimate monthly income is to look to the last 6 to 12 months and calculate your average earnings.
To be conservative and create a stricter budget, you can always use your lowest monthly income from the last year.
Where Does Your Money Go?
The next step in creating your budget is looking at your expected monthly expenses. These consist of fixed, variable and non-essential expenses. If you are confused about what your expenses are, keep your receipts, create an online banking account, and make note of every expenditure you make within a month. Your fixed expenses will generally stay the same each month, examples include rent or mortgage, car payments and insurance, property taxes, home insurance, or any other monthly recurring expense. Debt settement programs can help you to reduce the amount of debt in your monthly expenses. Variable expenses fluctuate each month; examples include car maintenance, gasoline, food, electricity, heating, gas, phone bills, etc. Lastly, your non-essential expenses include the extra, and frivolous expenditures, such as clothing, movies, magazines, video games, dining out, etc.
Once you have all your expenses gathered, add them all up to calculate the total you are spending each month.
How Much Money Do You Have Left?
Once you have compiled your bank statements, know your monthly income, and how much you spend a month on your expenses, it is time to compare the money you have coming in versus what is going out, this is as easy as subtracting your expenses from your after-tax income. If you are left with a positive dollar value after covering all of your expenses, you are on the right track. If you notice that you have a deficit, you are now faced with the difficult decision of how to make cuts to your monthly expenses. The first place to scrutinize in order to save money is your non-essential expenses. Although this may involve some sacrifices, most people can cut back on non-essential spending and still have a high quality of life. Eating out and shopping are common culprits that can easily be reduced through self-restraint and organization of one’s home life. Make a habit of cooking at home, and consider your current needs versus your current wants when thinking about making non-essential purchases.
Why Do You Need A Budget?
Creating a monthly budget will make you more aware of your current financial situation. By creating a budget, you will naturally begin to observe your spending more closely and become aware of expenses that are unnecessary. Budget awareness ensures that your expenses won’t take you by surprise, and gives you confidence in your ability to always pay for your pressing expenses. Budgeting can also allow you to work towards savings goals, such as saving for purchases or saving to pay down debts. Paying down debts as a portion of your monthly budget may mean you have less to spend on non-essentials, but clearing your debt and maintaining your budget will eventually lead you on the path to financial freedom.
The Fryzuk Group is committed to improving your financial wellness. If you’d like to learn more about using a budget to eliminate your debts contact us today for a free, private consultation.