| Making your Family Budget |
Budgets are a necessary evil. Making -- and sticking to -- a budget
is the elemental tool for ensuring that your money gets used the way you want it. Whether
you are rich or poor, the fact is that you need to plan your expenditure. And the only
practical way to get a grip on your spending so that you can make sure your money is used
the way you want it.
Creating a budget is definitely a painful task but one has to start somewhere. Basically a
budget has three steps-1) identify how your money is spent today, 2) evaluate that
spending and set goals that take into account your financial objectives, and 3) track your
ongoing spending to make sure it stays within those guidelines.
Start by listing your expenses-get all your records together from the last 12 months,
including pay stubs, loan proceeds, withdrawal slips, canceled checks and itemized
credit-card statements. Then go through them and compile totals for your income and
expenses in a set of categories that make sense for you. At the end of this exercise, you
may still have a sizable lump of spending that's undocumented -- typically, the money you
withdraw in cash and then spend on day-to-day needs. If this portion of your budget is
more than about 5 percent of your total spending, you ought to go through one further step
to understand where it is going. That is, keep a journal for the next four weeks, either
by hand or electronically, in which you record every nickel you spend. You can use those
results to extrapolate how your cash is being spent throughout the year.
Next you should analyze your spending habits to see where you need to make changes. If
your household runs in the black, you may still want to reallocate some of your spending.
If your income doesn't cover your costs, then some of your spending is probably for
luxuries -- even if you've been considering them to be filling a real need. Aim to spend
no more than 90 percent of your income. That way, you'll have the other 10 percent left to
save for your big-picture items. Look first for small savings For example, Shop for
clothes and household furnishings only during sales etc. Then move on to the big ticket
items like refinancing your loans. If new loans are costing at least two percentage points
less than the rate you're paying, refinancing may help you save significantly.
When projecting your income, don't include money that you can't be sure to receive, such
as highly variable year-end bonuses, tax refunds, gains on investments or gambling
winnings. Instead, wait until the extra cash arrives, then save or invest it to produce
more revenue for the future. As your annual income climbs from raises, promotions and
smart investing, don't start spending for luxuries until you're sure that you're staying
ahead of inflation.
Then set your financial priorities. You may not be able to achieve every financial goal
you've ever dreamed of, but you can achieve the most important ones if you identify them
clearly in your own mind and decide which are most important. Divide the goals into
primary and secondary and concentrate on the primaries. In drawing up your list of goals,
you should look for things that will help you feel financially secure, happy or fulfilled.
For instance like -Accumulating enough savings to handle an emergency, Buying a house
large enough to accommodate you comfortably, Getting out of debt -- and staying out,
Paying for your children's college education, amassing enough wealth to retire comfortably
etc.
The longer you wait to identify and begin working toward your goals, the more difficulty
you'll have reaching them. Once you have prioritized your list of goals, keep your
spending on course. Whenever you make a large payment for anything ask yourself: "Is
this taking me nearer to my primary goals -- or leading me farther away from them?"
If a big expense doesn't get you closer to your goals, try to defer or reduce it. Also as
your needs and desires invariably change as you age, so you should probably re-examine
your priorities and the course they are leading you on from time to time.
Remember, the starting point is realizing that you need a budget and that everyone does.
Also the sooner you start working towards your priorities, the longer the power of
compounding will work for you.
Aru Srivastava
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