Setting Up a Budget Plan
Why is it so important to set up a budget? We all ask ourselves this question some point in our life. There are many reasons why it is important to budget your personal finances. A budget is kind of like a money plan that outlines your financial goals and responsibilities. In order to set up an effective budget, you have to understand the steps to budgeting.
The first step is to list all your financial responsibilities such as rent or mortgage, utility bills, auto payment, and other bills that you have to pay regularly. Starting with your monthly income, you should begin to deduct all of these monthly expenses in order to come up with an ending amount that you will have after the monthly financial responsibilities are taken care of. After deducting your fixed costs from your total income, the remaining balance is where your money management skills should start to kick in. It is recommended to put a certain amount into a savings account every month for unexpected expenses.
This will act as your emergency fund and will be for unexpected circumstances such as automobile problems, sickness, etc. Setting aside a personal allowance for yourself or your family is also recommended so that you have some funds to spend on that day out with the family. If you happen to have something that you want to buy that would be considered a “big purchase”, you should set up a goal for that by setting aside a specific amount and add that to your budget plan.
When you do this, you should make sure that you are not taking away from the monthly responsibilities. A budget plan starts to prove it ineffective when there are unnecessary expenditures like eating out to much or buying things that you or the family really do not need. Having a budget will improve your money management skills and will take away that dreaded stress of paying bills. It is important to have flexibility and inflexibility within your budget plan. Having a good understanding of the difference between luxuries and necessities is key to any effective budget plan.
When setting up a budget plan for the first time, always start with your necessities first then add your luxuries in to the budget as they fit. Having a budget will help you see the trends in your spending and you will be able to make adjustments accordingly.
In conclusion, learning the steps to setting up a budget will help you create a plan that will enable you to live your life without stress and fear of not having enough money to live on. Gaining financial freedom is a goal that should be achieved through effective money management skills and dedication. The key is to not get discouraged and side tracked, keep focused on your necessities and put learn how to live without the frivolous luxuries that always seem to leave that burning hole in your pocket. The goal is to live a happy and stress free life.