Monday, August 4, 2008

Budgeting secrets for this new frugal world

Want to save money and willing to learn? Let's review the secrets to budgeting with frugal finances.

The budget will tell you the truths of your financial story: how much money you have available, where your money is going and where it SHOULD be going. If your budget isn't telling you these things you might want to reconsider its layout.

1. Assess your monthly expenses: Make a list of all of your regular monthly expenses, including any money that you spend on fun things like eating out, entertainment and hobbies; and any minimum payments that you have to make towards your debts. Using a budget form makes this easier.
Teamwork is extremely important - spouse, children should be on board with the budget. The family needs to have a clear understanding of what the monthly expenses are and where the money flow is headed

1a. Clarify Your Income and Expenses: First, list all sources of gross income. Second, list all of your fixed expenses and subtract them from your gross income. Fixed expenses include savings, credit and loan payments, insurance payments, mortgage or rent, and taxes. The amount left is what you have for variable expenses. Variable expenses, being the easiest to reduce, include groceries, clothing, auto expenses, eating out, and entertainment.

2. Prioritize: This is a serious Must-Do. Once you have written down all of your expenses on paper: get a clean sheet of paper and rewrite them in order of Priority. If your house is your biggest priority, put your mortgage at the top.

3. List your Goals: Most budgets don't plan to fail, but many fail to plan. If you haven't discussed with your family what your goals are, you will not reach them. On the bottom of your Budget, Write your Goals down. If your goal is to have your house paid off and be entirely debt free, write it on there. If your goal is to Retire at age 55, put it down on paper.

4. Track Your Spending: Use a small notebook, your checkbook register or financial software to track all of your expenditures. I find it easier to use a small notebook and the check register, because I can carry it with me and stay current. Financial software, like Quicken or Money 99, does an excellent job and will even show your spending graphically.

5. Analyze Your Spending: After tracking all of your spending for at least a month, look to see where you can reduce your spending. Is your long distance phone bill too high? Do you spend too much on lunches out?

6. Put your budget to work: Once you've created a budget that covers all of your monthly expenses and financial goals, it s time to put your budget to the test. Try to live within your budget, and see how it feels.

7. Rework your budget: If your budget comes out on the negative side, rework it until your numbers crunch. To do this, go back over each expense, and look for places to make cuts.

8. Reward Yourself: Frugality takes time and effort. Reward yourself for your progress, but not with financial rewards. For example, play soft music and spend the evening lying in bed reading a good book - borrowed from the library, of course!

Solid budgets are realistic, flexible and are not made in one sitting. This will be a process that will continually change as your needs, income and desired output change.

Don't Forget: Build in money for debt reduction. Build in your savings and investments.



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