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Making a Budget

Having a budget is important for everyone regardless of income. The reasons that a budget is important may be different for those with a modest income vs. high income earners – but the fact remains that budgeting should be part of everyone’s routine.

Why Bother?
In order to do something successfully, you have to want to do it. If you have no motivation you are unlikely to follow through and put in effort. It is like working out. You can buy yourself a fancy piece of work out equipment or a gym membership, but unless you have something motivating you to use it – it will sit idle and be a waste. So – why bother budgeting? Will it really make a difference in your life? The answer is yes. For some people budgeting will actually help them to have a plan to successfully meet expenses. That unto itself is a goal for many people. For those who can meet their expenses, budgeting will help them be able to save money. Without a plan, it is easy to waste a lot of money quickly. Have a goal that you are working towards. As you see progress you will be more motivated to continue.

Where Do I Start?
The first step is the look at what your income is. Write down your income from all sources and when it comes in. For people who are irregular income earners (ie. self-employed or commission sales) it is always best to plan on the low side of your income expectation. Look at previous years income tax returns and figure out what your average income is (and if you are self-employed don’t forget to reduce that figure by the income tax payable).

What Next?
Now you need to figure out all of your fixed expenses and when they are due. An easy place to start on this task is by taking out your bank statements from the past few months and reviewing the dates and amounts of any pre-authorized withdrawals. Next you can review all of your bills and when they are due.

And Now the Hard Part
The next part is the hard part – figuring out where the rest of the money goes. For those who have not been tracking monthly expenses – you are going to have to do your best to estimate your expenses. You will need to track your expenses in the future to make your budget work, so over time you can adjust these estimates to real figures. I will discuss more about the tracking side of things next week. You need to really think about ALL of your expenses – not just the obvious ones like groceries and gas. Don’t forget to factor in things like coffee, donations, school expenses and all of the other things you may do without much thought.

Irregular Expenses That are Part of Regular Life
You should also be budgeting in things that don’t necessarily happen every month but are part of regular life. Car repairs, clothing and house repairs and just a few examples. It is easier to sit a small amount aside each month then trying to deal with expenses as they occur. Committing to putting the money away each month is an important part of the budgeting process.

Savings
When pay day comes, put the amount you have allocated to savings away just like it is a bill you owe. Move it to a separate account. If you do not move the money it will disappear in small pieces. Whether it is $5.00 or $500.00 savings needs to be somewhere other than your day to day bank account.

Staying on Track
Having a system of tracking your expenses is essential to the budgeting process. It is the only way to know if you are staying within the amounts you have set for your spending. Willpower is important here. If you are on the brink of overspending in a certain area you have to make sure you do not by changing your spending patterns. If you determine it is a problem with the budget, make the necessary changes. Remember if you spending more in one area you need to reduce another accordingly. Eventually you can also start working on ways to reduce expenses – but it is all about taking one step at a time.

Budgeting is a process. It takes work. But the rewards are huge. Life is a lot less stressful when you have a plan.

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