Ideas on Preparing a Personal Budget
When you want to get on top of your finances, a personal budget can be a useful and practical tool. A budget allows you to track income and expenditures each month and helps you manage credit, debt, and cash outflow. As you plan a budget, be flexible, and don't be afraid to experiment to find the format and style that works best for you.
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Stay Simple
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The quickest way to kill a personal budget is to include too many details. An overly-complex budget can be difficult to follow and tedious to update. Instead of including a single item for every planned expenditure, group your expenses into categories. Start with the basics, like food, housing, utilities, auto maintenance and monthly bills; add additional categories for other expenses that are specific for your lifestyle, like travel or salaries for child-care providers.
Prioritize Expenses
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When you are planning the budget, prioritize expenses to ensure that vital bills are paid first. Compile a list that includes monthly bills, credit cards, and outstanding loans, and arrange by due date. Plot your income against the due dates so you will know how much of each paycheck to allocate. This will allow you to budget within each month to avoid late fees or missed payments. In doing so, you may find that you need to hold part of a paycheck back to cover expenses if most of your bills are due in one week.
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Create a Cushion
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When you first start budgeting, you may not have a clear idea of how much you spend each month on necessities; it is also impossible to predict small expenses like unexpected home repairs or changes in income. To account for that unknown and to provide the start of an emergency fund, increase your expected monthly expenditures by about 30 percent.
Plan for Long Term Expenses
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When planning a monthly budget, don't forget to take into account long-term expenses like tax payments, insurance, vehicle registration fees, or homeowners' association fees. As you start a budget, divide total yearly and quarterly costs by the number of months until they are due again; include this figure in a separate category each month. This way, you can build up a savings for these items over time instead of pulling them out of one check when they are due.
Review Regularly
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As you start using your budget, take the time to review it periodically to identify areas that are under or over the anticipated levels. This will allow you to update and make your budget more efficient, and ensure that you maintain an awareness of your financial situation.
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