A Budget serves many and different purposes for different people. For us, it serves like a step by step navigation system. Since we are trying to kick debt off, a budget is one of the tools that as travelers on the journey to become debt free we do not have the pleasure of living without.
How to master your budget
1. Establish financial goals
Knowing where you are and where you want to go financially helps you draw a financial roadmap that you can follow. Setting achievable goals will help you know where you want to go, while keeping up with your budget helps you know where you are.
2. Record your total income
This includes any pay that you regularly receive- from:- paycheck, allowances, investments or any other regular sources. Record the sum of all your income. If you have a spouse with a source of income, this would also include your spouse income.
3. Record your total expense
Most people know on top of their head how much they make, but few can tell how much they spend. Recording your expenses help you see where your hard earned money is going. This is the total amount you spend to buy food or pay for services. Some of the expenses in a budget entry might include: rent, mortgage payment, utilities bills, tuition payment, Loan repayment, childcare, insurance, groceries, giving and other misc expenses.
4. Prepare a trial budget
Determine your budget period i.e. monthly, bi-weekly or even weekly. Organizations and companies use fiscal year, but annual budget may not work for household financial planning. We usually do a monthly budget and we’ve been happy with this plan for the last two years we’ve been doing it. Use some financial planning tools like excel spreadsheet to prepare a trial budget. In our case, our trial budget actually became the real budget .
5. Live within your budget
I know it’s easier said than done, but if you want to achieve your goals, you must live within your means or as I call it within your budget. The best way to live within the budget is to carefully consider the expected expenses for the budget period. Having an emergency fund will also shield you from going over your budget or getting into debt should the unexpected happen- because it does happen.
6. Evaluate your budget.
Regularly check to see if your budget is working for you. Check to see if you are spending more than you are earning, try to figure out where you can cut spending to balance your budget or to put more cash into savings, or how you can increase your income ie getting a second or third income. But most important- If it’s not working, fix it now than later.
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