Budgeting

Having a budget is one of the first steps towards building sound money management skills. A budget will help you track your expenses and identify the areas in which you can save. It can help you plan to get out of debt, reach retirement and fulfill your financial dreams.

In order to successfully budget, you have to identify your reasons for wanting to change your financial situation. Sit down and write down your goals. Whenever you are tempted to spend or skip balancing your checkbook, look at your goals. They will motivate you to do what is necessary in order to pay off your debt and save for the future.

In order to create a true budget, you will need to track your expenses for at least three months. Simply get receipts for everything you purchase. Once a week or so, take some time to record your receipts into a notebook or spreadsheet. Break them down by category. Finish out your budget by including all of your monthly and yearly bills.

Once you have tracked and identified your spending, you are able to review it and see where you can reduce unnecessary spending. This will be very helpful in finding the money to pay off debt and save. One of the best ways to find money for your savings is to reduce your debt. By reducing your debt, you free up a lot of money in your monthly budget and in your future.

A home budget is often harder to stick with than it is to create. Too often, people take the time to create a budget, then file it away where they never look at it again. Here are a few tips for making your budget work for your finances:

• Review it frequently. Like balancing your checkbook, the more you do it the better it works.
• Remember that it can and will change over time. Finances are not set in stone -- they need modifying.
• When you aren't meeting a spending goal, look at it and readjust it if needed. Too many goals are unrealistic. Start small and work your way up.
• Don't use someone else's template for your budget. Finances are unique to each family or individual. Your spending needs aren't like anyone else's. Create your own budget based on your spending and goals.
• Keep your overall financial goals in front of you. These goals will motivate you to stick with your financial plans. Your budget is just a plan -- nothing more.

If for some reason, you fall off the budget wagon, don't worry. Just pick yourself up, find out why it happened and start budgeting again. We all have our moments that throw our budgets off. All you can do is adjust your budget and your thinking. Remember your goals. Think about that comfortable and early retirement. Think about not having to worry about finding the money for your son's college education. Think about that vacation or new furniture that you want to save for.

One of the best protections for your budget is having two savings accounts. One is for emergencies and the other is for yearly expenses. Your emergency savings will prevent accidents, break downs and other unexpected events from hurting your monthly budget. If you have a fund that will take care of fixing the air conditioner or cover a lapse in income due to illness, your budget can keep working. Most advisors recommend at least three months of expenses in your emergency savings.

Your yearly expenses savings account is where you keep the money for your yearly expenses. Simply total up all of your once-a-year expenses. Include birthdays, holidays, insurance premiums, taxes and other yearly costs. Divide the total by twelve. Every month you will deposit this amount into your savings. The idea is to not have to stretch your budget to pay something you didn't plan for.