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5 Steps To Better Budgeting
By Martin Sumner Published: 05/04/2009
Often, simple things aren't done well in life - they are overlooked because of the fact that they are simple. People have nightmares and are sometimes pushed to the extremes due to their ever-pressing financial needs but all it would have taken was a simple plan - a budget. Here's how we put an end to those pesky financial problems by using these simple, yet unbelievably effective steps:
Get a Perspective: If you want to go somewhere, you should first know two things - where you are and where you want to go. Take a snap shot of what you earn and what you spend. Your income would be determined by all the cash-flow coming in from your job, business, rent payouts ( if you leased them out), etc. and then you will have to list out your expenses like rents, utility bills, food, other expenses, children's education, entertainment etc. Save receipts and take note of even the minutest of the details - this can be accomplished by forcing yourself to record these costs. See what comes up when you match your income to your expenses. Usually, for most people this picture can be nauseating. Your expenses might well surpass your income levels.
Stop that Mindless Spending: You might want to adjust your expenses first. You will need to ease a bit on your entertainment or cell phone expenses; use public transport instead of your own car and save on fuel; stop indulging and eating out and cut down on mindless spending. In a worst case scenario, you might want to downsize your vehicle loan or sell it off and micro-manage your living arrangements. If your income covers all of your expenses, you might still want to check your spending habits since this can give you a breather and help you fund your children's education or perhaps you can use it for a vacation.
Kick the Income Higher: On the Income side, you might want to get yourself another job that pays better; add another job during the weekends or work through the nights; consider a part-time business; try to work on multiple streams of recurring income. Anything that can help you to add to your income every month. The bottom line for a healthy financial picture is reduced expenses and increased income simultaneously.
Save, no matter what: You have financial problems and that is why you don't bother to save. But then, not saving will again lead you to the same problem: it is import to save a part of your income into a disciplined saving account or some other financial instrument that can be used in the future. An emergency fund ensures there is an adequate amount available to cover unforeseen events (car emergency, etc), should it arise. This will eliminate the need for using credit which can quickly damage your budget.
Be flexible on Your Budget: A rigid plan and the fact that you need to stick to it, is very critical to achieve your goal of hacking your financial problems. A budget is indeed a powerful, yet simple tool. However, you might not want to be very rigid about it. For example, if you have earmarked X amount of money for a particular loan and you get some extra cash for some reason, it might help to pay off this loan (although it wasn't mentioned in your budget). A little flexibility will go a long way to ensure a trouble free budgeting experience and will hopefully distance you from your financial problems.
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