One of the most successful ways for you to become debt free and build wealth is to make budget plan. A budget is basically a map that sets your course for the future. Without a good road-map you run a higher risk of making some wrong turns or not reaching your final destination.
Making Budget Plan
To start making a budget plan you need to be collecting all your receipts. I mean ALL receipts whether you pay by cash, check, or debit.
If you are a beginner at making a budget and just don’t have any idea on where to start, I have a Making Personal Budget page to help you get started.
If you are recording your receipts already in your software program or your checkbook register, you are already ahead of the game.
If you have been throwing these receipts away, then you need to learn to first record the information.
The information such as the date, the amount, to whom, and what kind of transaction. What kind of transaction is simply cash, check or debit. If paid by check, then you will also need the check number.
Please be very diligent in your record keeping for the next 90 days so that you begin to build a pattern of your spending habits.
Next step is to divide your expenses into categories, such as Mortgage, Gasoline/transportation, Food/groceries, etc. You will want to calculate a monthly balance of each category.
It is noted that your electric bill, for example, will more than likely be different every month. Like wise your Heating, water consumption and gasoline usage. This is why you need to calculate an average to give you an idea how much money you need to set aside each month to pay that particular bill.
Are you still with me ? great. Let us proceed.
Hopefully you have a balance left over at the end of the month that is not spent. That is ideal, but chances are you see areas that you need to trim down.
What you are actually doing with this budgeting and number crushing is you are finding ways to get your money to work for you, not you work for the money. There is a difference.
It is not uncommon to be overwhelmed by all this information. You are not trying to create stress, you are trying to devise a plan so that you avoid the stress.
Now review your monthly expenditures to see if you see a pattern of any expenses that seem overly ambitious. Like if your phone bill is so high that you could being buying a car instead. What about food, is your dining out more than your grocery bill? These are some of the expenses you will (you must) want to trim down.
Your mortgage payment is probably one of the largest spending areas in your budget. It is understood that you want to trim that cost as much as you can. However, that probably is a expenditure that does not have a lot of wiggle room to adjust.
Discretionary spending like entertainment, dining out, weekend getaways are more customarily expenses that can be be trimmed way down.
Make Your Accounting Work
In order to get your budget to work, you have to record religiously every receipt. It is not an easy habit to start. Sometime you have to to be creative in what works for you. Let me give you an example.
This was my first attempt at budgeting.
My wife was pretty good about saving her receipts (most of the time). But she would keep them together in her pocket purse. At the end of the week it was my job to record all the weekly receipts into our check register. I would organize by dates, recording it all. There would always be one or two receipts that inevitably were lost so I would have a blank space in the check register.
This leads to not being able to have a working balance. I would end up estimating the expense. It took us a while to devise a different strategy to have better results. You may also have to get “creative” in how you keep track of your expenses.
What we did was carry a little notebook in each of our cars. We spend money, before we start the car to leave, we recorded what we just spent and the date. This was so much easier for both of us in keeping good records.
Budgeting is not an exact science and there is always room for error. Do not worry and learn to forgive yourself of these errors.
By the end of this 90 day period you should have a very good indication of what your total monthly spending habits are. You need this in order to devise a plan on how to tackle and control your money.
The next strategy is Controlling Spending.