Your Budget

Your Road Map to Financial Freedom

I’ve heard it said that budgets are a lot like diets. Many people start them with best intentions, but do not stick to them.

There may be something wrong with me, but I always found it easy to budget. I’d love to tick off each payment as it was made and I found it a challenge to stick within the amount I set for variable expenses. The times I got in financial trouble were the times I wasn’t living on a budget.

A budget is simply a listing of expected income and expenses. It allows you to see and control where your money is going on a daily, weekly or monthly basis.

Being on a budget has nothing to do with being rich or poor, in debt or not. It’s simply a financial tool that can be helpful in getting your affairs in order. Think of it as your road map to financial independence.

If you’re new to budgeting (or if you have no clue why you’re always broke), you might want to try this exercise before setting your budget. Simply write down every expense you make, no matter how small, every day for a couple of weeks.

Balance your books every night. In other words, count your cash and make sure you know where every penny went. If you’re missing a few bucks, it will be easier to remember what happened to them if you don’t wait too long.

Once you know where you’re spending your money on a daily basis, you will be able to determine what you can live without (there’s got to be something, right?). At the very least, you will know how much cash you will need to exist every day.

You can use a financial software program like Quicken Premier , a spreadsheet like the one in Microsoft Works , usually installed on most new computers, or just a pencil and paper, to set up your budget.

I prefer the software programs because they force you to be more exact. Also I as I said before, once you have a nicely printed budget in your hands and you check off each item as it is paid, it not only gives you insight into where your money going, but also a little more incentive to stick with the program.

Work out how much cash you will need to get through the month. You know what your fixed expenses are: mortgage payments, credit cards and the like. Don’t forget payments that might occur only annually or semi-annually, like insurance premiums. Also add in things like vacation expenses, Christmas presents and other bills you know you will incur and add in a few bucks a week to build a fund to handle the unexpected illness, house repair or car breakdown.

Hopefully when you add up all your expected payments and subtract them from your expected income, you will have money left over.

If you have gotten this far, unlike many people, you will have a good idea what you’re true financial situation is. If fixed expenses, plus necessities like shelter, food and utilities, exceed your income, unless you have other assets, you’re officially bankrupt.

If you have money left, you can allocate it as you see fit. Ideally you’ll save it, but you can spend it any way you desire.

One thing your budget will tell you is if you’re getting seriously overextended. Does your mortgage or rent payments exceed 25% or your take home pay? Although some banks will allow you to borrow up to a third of your take home, ideally, to stay in the comfort zone, this figure should be under 25%.

Do your fixed expenses, credit card bills and necessities exceed 60% of your take home pay? If so, things are getting too tight and you should look for ways to increase income or cut expenses.

If you have a budget and stick to it, you should see dramatic improvements in your financial life quite quickly, especially if you close the credit card accounts. For an example of how to reduce debt rapidly, please visit, Strive To Be Debt Free. There you will see how the debt reduction programs contained in financial software packages such as Quicken Premier can cut years and thousands of dollars of interest payments off your debt.

If you want more advice, consider The Budget Kit: The Common Cents Money Management Workbook a highly praised, book by Judy Lawrence.

All it takes is self-control and a willingness to take control of your life.

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