Budgeting Your Money
The skills of budgeting your money is one of the most valuable skills a person can learn. Contrary to popular belief, this skill does not simply involve working, depositing your cheque into your bank account, and not spending any money; we are all human, and things that are nearly necessary in life involve spending money. The key point to this skill is knowing how much of your money to spend, and where to spend it! Learning how to budget money should be done at as early of an age as possible; however, a person can choose to learn it at whatever age is suitable for them. This article will instruct you with tips and tricks on how to budget your money properly. Reading this article will not necessarily inform you on how to budget so that you can buy a Porsche next year; it will provide you with ways in which you can live a life that is as wealthy as possible for you.
Determine Your Overall Income
The first step to creating a budget and beginning to save your money is to determine your overall income. I would recommend that you calculate this on a bi-weekly basis because it will keep all of the calculations in line with pay periods, and all of the numbers the same; calculating your income on a monthly basis would yield uneven numbers as the months have a different amount of days. The bottom line is that you should calculate your income using whatever method suits your situation best, as there are jobs that pay weekly, bi-weekly, monthly, and even tri-monthly.
In order to properly create a budget and begin to save your money you must calculate this as accurately as possible. For those individuals who work the same amount of hours every week, this will be an easy task; however, for those who own businesses, or work on a commission basis, you should try to calculate this figure based on an average to ensure accuracy.
Determine Your Fixed Expenses
You should also determine your fixed expenses when you are creating a budget and beginning to save your money so that you can know how much of your income will be expended. These expenses include car payments, insurance, mortgages, gas, cell phone bills, and any other reoccurring bill of roughly the same amount. Depending on the situation, you should try to keep this figure as close to 40 percent of your overall income as possible. Once this has been completed you will be one step closer to creating your budget that will allow you to save money
Determine Your Variable Expenses
These expenses are things such as entertainment costs, groceries, excursions, children's various expenses, and utility expenses; most of these figures will be roughly the same each month, but they have the ability to fluctuate. These are important factors when creating a budget because you have some control over them, unlike your fixed expenses. Some variable expenses, like groceries, you have nearly no control over, they are necessary to a certain degree; however, others like entertainment, you have complete control over...it is just as easy to watch a movie on television for free as paying for movie tickets to watch one at a theatre.
Determine If You Are Living Within Your Means To complete your budget you should subtract the fixed and variable expenses from your total income; this number will be what is left over. The percentage of your total income that this number is equivalent to will determine whether or not you are living within your means. The proportions differ when creating a budget due to various factors; however, if you see that you are left with a mere 1 or 2 percent, you should make an attempt to increase your income or decrease your expenses. There is no magical number for how much money should be left over, but if you follow the rule of "as much as possible" you will be absolutely fine.
Set Up An Emergency Fund
With that remaining amount of money, you should set up an account strictly for emergency purposes; it may be sunny right now, but who knows when a rainy day can come along. Realistically, you could lose your job tomorrow, find out your son needs braces next week, and have to replace your car's starter the week after! This emergency fund will make you more than prepared for these circumstances. I would recommend putting about 10 percent of the remaining money in this fund to save for any unexpected expenses that life will throw at you. By doing this you are allowing your budget to consistently remain untouched; you will be prepared for anything that would throw it off track.
Put Money Aside For A Reward
Every good deed should be rewarded...and consistently following a proper and effective budget is definitely a good deed. Allow yourself to put aside some money for a vacation, new golf clubs, or that new pair of shoes that you wanted. I would recommend putting about 15 percent of that remaining money into this fund so that you can be rewarded often, which will in turn keep you motivated to follow the budget that you have created.
Save Everything Else!
There is an old saying that goes something like "it is not how much somebody makes, but how much they save"; I can personally tell you that this is one of the most valuable phrases that you will ever come across. There is no such thing as saving too much. Save every single extra dollar that is left over once you have fulfilled all of the other aspects of the budget that you have created. Your savings should consist of a retirement fund, a larger savings account with a high interest rate and restricted access, and a smaller savings account with a lower interest rate and unrestricted access; by diversifying your saved funds, you can get the best of all of the worlds: long term, mediocre term, and short term. Use your discretion when deciding upon the balances, but they should ideally be respective of their terms (ie. Large balance in the long term savings account, smaller balance in the mediocre term savings account, and smallest balance in the short term savings account). By doing this, you can ensure that your needs will be met no matter what they consist of.
Developing a budget is a long, but rewarding process. The richest people in the world didn't get rich by simply working and spending their money; but rather by developing a budget, and adhering to it for an extended period of time. Be sure to remember to reward yourself so that you can stay motivated to continue to follow the budget; after all, what good is a budget if you are not motivated to follow it, and do not do so?