Budget Procedures
Keeping a budget helps you remain on top of your finances. Understanding where the money is coming from and where it goes is the most important element in staying out of debt and using the money you have to best advantage. Once you get into the habit of keeping track of everything in writing, it becomes second nature.
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Writing It Down
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Keep a small notebook with you and write down the amount and item every time you buy something. At home, add these numbers to a larger book where you keep track of all your expenses, including ongoing costs such as rent or mortgage, utility bills and other amounts that are taken out of your bank account through direct debit or that you pay by check through the mail. This history of all your income and spending is an essential tool to help you understand the dynamics of your personal budget. Get into the habit of using it.
Analysis
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After you have kept a written budget for several months, go over it item by item and analyze it. Separate the spending items into categories, such as food, utilities and transportation. If you are someone who tends to understand things visually, make a pie graph showing where your money is going to help you understand it. Once you have processed all your numbers, you will have a better idea of where you can cut things if you need to save money.
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Cutting Waste
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Your budget analysis may reveal some easy places where you could change your habits and save money. For example, you might discover that you spend $25 a month on newspapers. Because each one is cheap enough that you wouldn't remember buying it, you may not have been aware that you were spending this much. By getting into the habit of reading the newspaper at the library, you could save $300 a year, money that could go toward things with more long-term benefit, such as paying down your mortgage.
Reducing Carrying Costs
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Carrying costs are things like the interest on your mortgage, credit card and car loan. Carrying costs are the price you pay for using someone else's money. These loans serve a useful purpose, but the faster you can pay them off the less they will end up costing you. Reducing carrying costs isn't as easy as eliminating newspapers from your budget, but it can be done. Talk to your banker to find out if you can refinance your mortgage at a lower rate. Analyze your insurance plans to find out if you are covered for, and paying premiums on, things you don't need. Consider trading in your car for a smaller, cheaper one that will have a lower loan amount and lower insurance rates.
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References
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