Tips for Creating a Budget

One fairly simple answer to avoiding or even rectifying household debt is to create a budget. It does take a little planning and, yes, it does take some will power to successfully stick to a budget, but a budget can be a powerfully effective financial weapon.

Budget Basics
Your household income must be greater than your household expenses. Sounds pretty easy, right? From the amount of debt owed by the average American family, it is obvious that most are not following this simple premise. Families (or singles) that break this rule find themselves having to borrow money to meet their monthly financial obligations. This is a sure road to monetary ruin if it happens on a regular basis.

Creating a Budget
The first thing you should do when preparing a budget is to assess how much money is coming into your household each month and how much is going out. You will need to set up a list of your fixed expenses, such as mortgage or rent payments, utilities, groceries, school loans, car payments, and insurance premiums. You should then make a list of such variable expenses as entertainment, clothing and medical bills. Documenting all income and expense items will give you a clear picture of your family’s spending patterns. The main idea of a budget is to insure that you have the necessary funds to cover such basic needs as housing, food, insurance and medical expenses. If you are trying to pay off debt, this must also be included in your budget plan.

Budget Fine Points
In addition to your regular paychecks, you should include both reliable and unpredictable sources of income such as interest payments, tax refunds, stock dividends, bonuses and monetary gifts. Any reliable source of money flowing into your household each month should be included in the income section of your budget. In addition to the fixed and variable expenses listed in the previous paragraph, you should also consider such expenses as childcare, commuting and other expenses that contribute to the ongoing healthy lifestyle of you and your family. Other variable expenses may be vacations, costs associated with a second home and saving for your children’s college or weddings. And, unless you are planning on working forever, you will need to include retirement funding in your budget!

Setting Up & Balancing the Budget
Once you've identified your sources of income each month and figured out your expenses, it's time to see how your budget is balancing. At the very least you will want a balanced budget. However, you may be running a budget deficit or a surplus. Here is a simple formula to figure out your budget:

Household Income - Household Expenses = Household Savings

If the value for your household savings is negative, you've got a budget deficit. If the value is zero, your budget is balanced. If it is positive, you're running a budget surplus, which is a sign of an excellent budget.

Regardless of how you approach a budget, the most important thing to realize is that you are taking the first step in controlling your long term financial health. Basic computer software programs as Quicken and Microsoft's Money have spreadsheets that you can setup and personalize to suit your family’s needs.

Budget Synopsis
• Set clear goals – Whether you are saving for a house, a second home, that once-in-a-lifetime vacation, major re-model, retirement or your children’s education, a budget can help you realize your objectives
• Simplify – Keeping your budget as simple as possible, while still including all necessary items, will help you stick to your financial plan
• Re-Evaluate – Go over your budget periodically to see if you can reduce or eliminate variable expenses or to see if your numbers have changed
• Reduce Debt – It is important to include in your budget ways to pay off your debt, especially high-interest credit card bills. This means actually paying off those cards, not just making the minimum payments

Many financial planners and Credit Counseling services recommend setting aside 10 to 15 percent of your total income each month in a savings account, 401(k) or Roth IRA. If you cannot manage that figure, any amount that you can save will add to your financial security, and pay for your credit debt online.

If you are considering establishing a personal budget, we hope that the above information was helpful. For more help, please take a moment to fill out the form on the bottom of this page to speak with a member of our professional debt consolidation staff. You will be happy that you took the time to secure your financial future.