I have been doing a series this year in my monthly newsletter about getting control of your finances. Here is article #2 of my series:
After you have kept track of your spending for a month, now it's time to:
2. SET A BUDGET
There are not many of us that like to create, or stick to a budget. It can seem confining and inflexible, but is a great tool to us to work towards meeting your financial goals and getting control of your money.
If you are hesitant to create a full-fledged budget, then try creating a spending plan instead to give direction to your finances. Here are some important steps to creating your spending plan:
1. Project income-How much do you bring in every month? Will you receive any windfalls soon?
2. List Fixed Expenses- Note the items that you must pay every month: cable, telephone, gas, electricity etc) These are the bills that you must pay to maintain your lifestyle.
3. List Your Debts- Include your car, home equity, credit cards and student loans here
4. Plan Ahead- Do you have an large expenses looming? Make sure you plan for these if you know they are coming.
Since you just spent the last month tracking your spending, you should have a clear picture of what you should plan for in each category here. You'll need to take a look at your spending plan every so often to tweak it-don't think you can sit down and create this and then walk away from it. As you continue to track your spending, you'll be able to see where changes need to be made to your plan. You need to be able to compensate for changing circumstances and changing priorities.
Some of you may want to make a budget, but need more info. to be able to know how to break it down. Here is a good guide called the 60% solution budget:
Divide your GROSS monthly income as follows:
1. 60% to Committed Expenses such as taxes, clothing, basic living expenses, insurance, charity (including tithe), and regular bills (like cable)
2. 10% to Retirement
3. 10% to Irregular Expenses such as vacations, major repair bills, new appliances etc.
4. 10% to Long-Term Savings/Debt-money set aside for car purchases, home renovations or to pay down debt
5. 10% for Fun Money to be used for dining out, hobbies, indulgences etc.
Use this as a jumping off point to create your budget. Next time, we'll be looking at the next step: Start an Emergency Fund.