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Personal Budgeting

Importance of a Budget

Developing and Mastering Budgeting Skills

Successful budgeting is lifelong necessity for most of us and is an essential part of being a responsible adult. Living within one's means requires self control and reasoned thinking. It is something that many struggle with and often fail at. An inability to carefully manage spending can cause strife in marriage, damage credit and prevent individuals from realizing their goals.

Reasons for Maintaining a Budget:

-Protecting Your Credit
This is vital for anybody who plans on making any large purchases or take out multi-year loans in the future. Having a good budget helps protect your credit in two ways: it ensures that debt installments are paid on time, and it prevents financial oversights from requiring you to depend heavily ion high interest credit cards. Building a solid history of on-time credit card payments and maintaining a low debt to available credit ratio will aid your credit score.

-Increased Savings
It doesn't matter what your age is, having a growing savings account is a prudent buffer against hard times caused by unexpected or emergency expenses. It is very difficult to increase your savings without allocating specific amounts to such accounts on a regular basis. Having a planned budget allows one to actualize this goal.

-Family Matters
Whether you are happily newlywed or have been going strong in a marriage for over 20 years, it is no secret that finances can be a major source of conflict in relationships. Disputes over overspending, or disagreements regarding sharing financial burdens is just as likely to end unions as are marital infidelity. A negotiated budget can establish limits and guidelines that may preempt future problems.

How to Budget:

-Analyze Expenditures
The first step towards creating a budget is taking a close look at where your money is going. It can sometimes be surprising the items that end up biting off the largest portion of your paycheck. Eating out regularly, for example, may constitute a larger portion of your monthly expenses than previously thought. The goal is to be able to level-headedly compare expenses and then assign a priority to the services or products that they render. You may find that you are paying an additional 40 dollars a month for unlimited internet access on your cell phone and yet rarely use the added capability.

-Ration Income
By definition, a budget involves allocating funds for specific purposes and limiting the amount to be used for others. You can develop a system that revolves around monthly income and expenditures - as is commonly done - or you can break things down paycheck to paycheck. Regardless of which one is utilized, the goal is to always have enough for essential expenses and to always have those funds available. Housing/utilities, credit card and car payments are at the top of the list, then come essentials such as food and transportation related costs. Hopefully after these have been taken care of there is still sufficient to allocate a reasonable percentage to savings - at least 5%, more if you are older. The remainder can be divided into areas depending on personal priorities. Entertainment and clothing are often areas that discretionary income is spent on.