How to Budget Your Salary
One of the first steps to financial freedom is the task of setting a budget for your salary. A budget is an estimate of spending for a pre-set period, typically a month at a time. Using a budget for your salary helps you to plan for expected and unexpected expenses, as well as to ensure that you have enough funds to last until the next paycheck. Budgeting is also a good tool for saving or paying down debt.
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Instructions
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Track your spending for a month. If you use your checking account for a majority of your spending, this should be an easy task. Simply note any additional cash expenditures on a notepad. If you rely heavily on cash, keep all your receipts and write each expenditure down as it happens to track one full month's spending.
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Write down each spending category, such as rent, automobile, insurance, food, entertainment, clothing, medical costs and utility bills. Place each expense item from Step 1 into its most appropriate category. Add additional categories if other areas of spending arise. Include a category for debt repayment, if applicable and another for savings.
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Add up each category and create a grand total of spending for the month. If this number is not less than your monthly income or salary, major work needs to take place to reduce monthly spending.
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Analyze each spending category for areas where a spending reduction can take place. For example, check entertainment expenses for possible reductions. Check utility company spending and look for ways to reduce your rate by taking advantage of specials, or by switching carriers. Find ways to reduce spending below your monthly salary. If you have a debt requiring repayment, allot extra money per month to pay down the principle faster.
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Tips & Warnings
Analyze your budget every few months to ensure spending stays within the boundaries initially set. If not, rework the budget to serve your needs better.
Setting an unrealistically low budget sets you up for failure. If you cannot make additional budget cuts, yet extra money is needed to accomplish your goals, consider taking on a second job or overtime work to bring in extra income.
References
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