Budgeting

Creating a budget and taking a deep look at your finances is a big step. Setting up a budget can give you control of your finances and relief from nagging debt and bills. A simple budget can save your personal finance life. And, it's not nearly as hard as you may have thought it was. Setting a budget up for the first time can take some time, but once you have, the maintenance is quick and easy. So, how do you go about setting up a budget? Here's some steps.

First things first. You can't budget for your money, if you don't know how much money you have. Start off by calculating your income from all of the sources that you receive money from. Include salary, child support, alimony, social security, interest, dividends, and any other miscellaneous income. If you're creating a budget for your whole family, also include the income of your spouse and any other contributing members of your family. An important point: Don't include income that is highly changing. A yearly bonus, any tips, and even some commission pay can change drastically. Start with only the income that you can reasonably depend on.

Once you've determined your income, it's time to move on to the most important part of the budget. The expenses. You can break them down however you like, but for ease, put the items that are non-negotiable at the top. Things like mortgage or rent, loan payments, and utilities. Follow those with the things that are necessary. Food, clothing (necessary clothing, not trendsetting), and medicines. Finally, add anything that you want to buy or spend on, but that isn't necessary. Anything you can live without. Subscriptions to magazines, golf club memberships, gym memberships, and your morning coffee. If you don't know exactly what all of these things are, keep a ledger for the first few months and your spending habits will be quickly revealed.

With the full list of income and expenses down, it's time to put it all together. Essentially, all a budget does is compare your income to your expenses. If you're expenses are more than your income, you need to reduce the amount of money that your spending and budgeting for. If you're expenses are less than your income, you've done well and have a surplus to use to pay down debt or to save for a rainy day.

With those steps, you'll be able to easily create a simple budget. Once you've got the basics down, it's time to make the budget really work for you. Use your budget to reduce your expenses to below your income so that you have extra money available to budget for debt repayment. The quicker you pay off debt, the faster you'll be free to buy what you want, or quit your job and go to work doing something you love. You'll also want to use your budget to create a savings account or two that can be used in an emergency and also for a retirement fund.

As you can see, creating a simple budget isn't that hard. It can easily be created with a few hours work, and the maintenance to keep it updated and to make it work for you is far less. Creating a budget is the first step on the path to financial independence, and once you've created it, you can begin enjoying the freedom and peace of mind that comes from having your personal finances under control.