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Personal Finance

Budget Magic:

An End To Money Stress

by Lacey Michelle

Most of us live counting down the days until payday.  We can’t wait to get the paycheck so we can buy that new outfit or go out with our friends on the weekend, but as money comes in from our jobs,  it goes right out with living expenses and bills.  If this sounds familiar, you probably need a budget to help you take control of your finances.

Just like a good exercise program, you could begin to see results of establishing a budget in just three months.  It will be worth spending the time to record and examine your earnings and expenses and then carefully develop a budget that suits you.  After reducing the overspending, you may be able to free up money for investing, saving or building a reserve for the occasional splurge or financial crisis.

Month One – During the first month, figure out exactly what you earn from your salary, and any other income.  Then, calculate your fixed monthly expenses such as car payments, rent or mortgage, groceries, and utility bills.  Also, calculate money you pay at regular intervals such as school tuition or insurance premiums.  This will allow you to plan for irregular, but necessary expenses so you won’t have to invade your savings when these bills come due.  Keeping a journal of all your expenses may make this process easier and may help you keep better tabs on your expenses.

Month Two – Use the second month of your budget program to figure out how you can cut your excess spending.  Calculate what percentage of your total income goes to each expense, from clothing to transportation to housing payments.  Regular monthly expenses should consume no more than 63 percent of your monthly income.  20 percent of your income should go toward occasional or unexpected expenses.  Put aside 10 percent for periodic bills that hit at different intervals and the last five percent, or possibly more, for saving and investing.

Month Three – In the third month of your budget creation, examine your balance sheet and make necessary changes.  You may want to take a closer look at how much you are paying in debt, such as credit cards.  Pay as much as you possibly can every month to help reduce your debt, even if it means using part of the savings you’ve accumulated by budgeting. Also, it is a good idea to keep an emergency fund for unexpected major expenses.  A good rule of thumb is three months’ salary saved up for emergencies.

You’ll want to review your budget annually to reflect changes in your income or in your spending habits.  You may have a college education coming up or a new home.  You’ll want to adjust your budget for lifestyle modifications.  Keep in mind that though you have a well-designed budget, the most important part is sticking to it.  Many budgets fail because people develop a plan in their minds and don’t actually record the steps and process.  Also, the more simple and realistic the budget, the more likely you’ll be able to stick with it.  This is a great way toward achieving a happy and prosperous New Year.

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