Making A Budget

Managing Your Debt

Making A Budget

20th May 2007

I do not know of anyone who enjoys making a budget do you? I have learnt a very valuable lesson though. Without a budget you can very easily lose control of your finances and wind up in some seriously bad debt. Sticking to a budget is in essence what makes budgeting a success. What is a budget? Simply put a budget is an estimate or plan of expenditure agains income. A budget I believe is the first step to managing your debt and personal finance. We all have a budget but when we don't have it writing is when our money troubles begin.

Managing Your Debt As I mentioned in an earlier post, goals are very important. Financial goals are the goals you have identified as leading you to your financial success. Getting a grip on how much you spend and how much income you have puts you one step closer to achieving your goal. To create a simple budget write down your income in one column and your expenses in another column. Expenses include gas, home loan repayments, credit cards, life insurance, student loans, apparel, food, charity and so on.

You can write down all this in a personal ledger but to save time, you can use software like Microsoft Money or Intuit Quicken. Keep your spending within your budget guidelines otherwise the whole purpose of drawing up a budget is defeated. Analyze your expenses in your budget and start to look for where you can cut down and save money. With the extra cash you are getting, start an emergency fund which can be a fixed deposit account or a savings account. An emergency fund is of utmost importance because life hapens but be extremely careful not to use this money for just anything. When budgeting, make sure your projected income is what you will really be getting in. This is because we tend to project tax returns, investment gains, year-end bonuses as income and yet most of the time you are not sure of the exact amounts you will be receiving.

Rather wait until the money comes in and include that on your personal budget. Instead of spending your extra income, save it or invest it so that it can bring in more money from interest and investment gains. This way you will begin to make your money work for you. The lack of a budget or following one will almost certainly result in two things.

Don't borrow to pay for expenses because in essence you are creating more debt for yourself. If you are in over your head with debt will getting a debt consolidation loan make sense? You get money on credit to service debt but the credit you've acquired is another debt. Do not use your credit card to pay for your debt if you are already not able to manage your current debt. Save your good credit profile for a real emergency. We need to get rid of this habit of getting loans to service other loans because for most people you end up in a cycle where you get loan upon loan and that spirals your debt out of control.

1. You lose track of your goals and priorities and you begin to spend money on items that are luxuries fulfilling 'wants' rather than needs. In this scenario your income will no longer be able to cater for your costs and this is the beginning of bad debt.

2. When you start spending beyond your limits this means you are living beyond your means. This is an indication or should be that it is time for you to seriously cut down on your expenses. While this does not make you bankrupt right away, if you do not make adjustments you are definately goint to end up in bad debt which may eventually lead to bankruptcy.

Budgets are a necessitiy and sticking to a budget is a sure way of getting you a step closer to achieving your financial goals. If you for some reason do not keep a budget yet, now is the time to start.

"Money's only important when you don't have any." - Sting

Comments (5):

Dexter Says: LOL!! Love the quote by Sting | 05.20.2007 |

Marianne Says: I have had a bit more luck after I started making a budget | 05.20.2007 |

Nina Says: Budgets are actually under estimated | 05.20.2007 |

Dorothy Says: Perhaps that will solve my problems because I do rough calculations on pieces of paper and it doesn't work too well, I'll try Microsoft Money | 05.20.2007 |

Tim Says: Maturity and accepting responsibility for your finances is first before one can budget | 05.20.2007 |

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