Developing a Budget

You ask people about the importance of developing a budget and most will tell you that it should be done. Yet very few people do it. Why?

Most people are simply not inclined to use spreadsheets, balance checkbooks or lay out a formal budget. There are many reasons for it, but the most important is that we associate “preparing a home budget” with “tedious, boring, complicated and taking too much time”. No wonder we don’t do it!

Why Developing A Budget is critical to your financial success

Making the effort to outline their expenses against their income can have huge rewards. In fact, it’s critical if you want to get out of debt. You need to know where your money is going. You can also identify trivial expenses that when cut out, can leave some money to pay off your debts.

Your budget should include your monthly income, and everything you spend your money on on any given month. Yes, you need to keep track, and we cannot stress it enough. You should also leave room for unexpected expenses that may come up.

You can use spreadsheet software, either from Microsoft ( MS Excel) or a free one from Open Office.org or Google Docs. If however, you don’t feel comfortable using spreadsheet software you can just use a legal-sized pad and a calculator. You don’t really need to get fancy here, the main idea is to know where your money is going.

If you decide to do your own spreadsheet on a piece of paper, divide the page into two columns. In one, list income; on the other one write down all monthly expenses. You may want to refer to your bank statements so you don’t miss any expenses.

In the expenses column make sure you include all your monthly bills like water, phone, gas, car payment, cell phone, groceries, cable, tuition, etc. Then add at least 10% for unexpected expenses, if you can.

Now, for an important add-on task that too few undertake: project different scenarios. Make another budget (an imaginary one) that shows monthly costs, income and the difference between the two… except:

Exclude monthly credit card interest amounts. Exclude auto loan interest. Exclude 25% of any ‘impulse buy’ amounts. Then sum the total of those three.

These three represent the amount you could conceivably avoid paying every month. If the total is even as low as 10% of your monthly expenses (and for some it’s higher), you are paying a substantial amount of your income on charges that could be avoided.

As you can see, purchasing items on credit just to have them sooner can cost you a lot of money over the years. Just think about all the extra money you could have every month if you were out of debt already.

Make it a priority to get out of debt. Set a realistic goal to get out of debt and then start saving the money you are now paying on interest. You can live the life of your dreams if you decide to pay off your debts and start saving towards your retirement. You can do it, it takes knowledge (look at the Debt into Wealth program, it’s a must-have to get out of debt in record time), perseverance and discipline.

Don’t listen to people who are deep in debt; look for people who saved money and follow their advice. Use your own judgement when shopping. And decide today that you will do whatever it takes to enjoy a debt-free life. You deserve it!

The BEST way to get out of debt

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