As another year comes to a close, many people take a step back to evaluate their lives, and make a "new year's resolution." The most common resolution for the new year is a diet -- many people develop a food plan of healthier eating habits that will help them shed pounds.
The new year is also a good time to take stock of your personal finances and to see if you need to make adjustments for a "healthier" balance sheet. In most cases, people have a lot more "fat" in their expense accounts than they realize. One step towards achieving better financial health is to set up a budget.
Most consumers would like to get control of their finances, but may think that budgeting is too cumbersome, or simply don't know where to start. Budgeting does take time in the beginning, but once you have a good handle on how you spend your money, budgeting becomes almost second nature. Here are some hints in setting up and sticking to a budget:
- Using the Budget Worksheet, review your bills over the past six months and put them into the budget categories.
- Figure out the average monthly expenses in these categories.
- For expenses that are paid each month, record the monthly expense, then multiply by 12 to get the annual expenses. For expenses that are paid periodically or annually (such as insurance), divide by 12 to get the amount you must set aside each month to meet those payments.
- For variable expenses, check your last six months of check payments in those categories to estimate your usual monthly expenses for each. Then multiply by 12 to arrive at the annual figures.
- Once you have listed monthly and yearly expenses in all of the categories of you spending, figure out your total income per month and per year.
- Subtract your monthly and yearly expenses from your income. If you find that the remainder is a negative number, you need to bo back to some of the spending areas under your control to see where you can cut back.
- Your work doesn't stop here. As your bills come in, keep track of your actual expenses in each category and adjust the budgeted figures, if necessary.
- Budgeting requires self-control and discipline to reach your goals B it can become a habit that will take you to greater financial security.