Personal Budget Planning:
Personal budget planning is a critical step on your journey to long-term financial health. Just as you need a map for a road trip, you also need a financial map – a budget – to stay on track toward your destination of a debt-free, reduced-stress life.
BREAK THE HABIT
It’s easy to blame financial trouble on your income – or more specifically, a lack of income. It’s definitely necessary to have enough money coming in to cover your basic expenses, and personal budget planning requires that you look at both your expenses and your income. In Creative Ways to Make Money I share ideas for generating additional income, from a small amount of quick cash to replacing a full salary.
But financial experts will tell you that not being able to make ends meet each month is more often due to poor spending habits rather than your income level. If you are not intentional about where your money is spent – if you are not budgeting money wisely – it’s too easy to fall for the hypnotic lure of plastic money.
Credit cards and debit cards encourage poor spending habits. They perpetuate overspending – that’s how they make money for the companies that offer them! And to make matters worse, credit cards make you spend extra money on finance charges. This in turn eats cash that you could have spent on something important to you.
It becomes a vicious circle, or actually a downward spiral, plunging you into deeper and deeper financial trouble. I’m going to show you how, with careful personal budget planning, you can stop the credit card spiral, learn to live within your means, and get your poor spending habits under control for good.
BUDGETING AT A GLANCE
Here is an overview of the personal budget planning process that I explain in detail in the coming chapters.
- Map your expenses: First, it’s important to take an inventory of your expenses (fixed ones as well as miscellaneous expenditures) and list them on your budget worksheet under the appropriate category of cash, check, or savings. Be sure to include some savings as well as a fund for emergencies.
- Make them monthly: Convert all of your expenses to monthly amounts to make it easier to plan.
- Do you balance? Compare your expenses to your income – do you have enough coming in to cover your expenses or are you short?
- Prioritize and trim: Review your expenses and trim wherever possible. Decide which expenses are priorities (health insurance, for example) and which can be lowered or even eliminated (meals out, or premium movie channels that you seldom watch are two good examples.)
- Monthly planning: Once you’ve balanced your worksheet (your income covers your expenses) it’s time to convert your expenses to the monthly budget planner, deciding when during the month each expense will be paid.
- Time for the meat: Now it’s time to put the system to work. Each of the three categories of expenses (cash, check and savings) serves an important role in your personal budget planning.
- Spending = Cash: Put away the plastic. Use cash for your weekly expenditures like groceries, gas, lunch, etc. Following your monthly planner, withdraw the exact amount of cash you need for each week and divide it among the categories. When the money for a category is gone, it’s gone until next week, so think before you spend.
- Checking: Your basic expenses like rent or mortgage, utilities, car payment, etc. will continue to be paid by check or through online bill paying.
- Saving for security: This is where you are budgeting money for future expenses, and to guard against unexpected expenses – a major piece of personal budget planning. Each month you will deposit funds to cover annual expenses (taxes & insurances, vacation money, Christmas or holiday money, etc.), emergency fund money (not available to be used for anything else), and saving-for-the-future money. If you have something specific you’re saving for such as a new car or college for the kids, that money will fall into this category as well.
In a nutshell, that’s it. I hope that this glimpse into the personal budget planning process takes the mystery out of it and puts you at ease. I know I’m always more comfortable when I know what to expect. The most important thing to remember is that it’s just common sense money management, and it’s doable! The next chapter, Making a Budget, is where it all begins. Just
I’ll meet you there....
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