Establishing a budget can help you grasp the bigger picture of your personal finances. That may sound like a hefty task, but analysing your spending habits and setting realistic fi...
5 basic rules of budgeting
Establishing a budget can help you grasp the bigger picture of your personal finances. That may sound like a hefty task, but analysing your spending habits and setting realistic financial goals are easier if you stick to some of the basic rules of budgeting. Trying to stick to the following financial rules may prove to be the hardest aspect of any personal budget.
Rule 1: Identify current expenditures
Take an honest look at your current total household income and expenses. You can crunch these numbers on your own or get help from many of the free budget websites. The latter recommends your household expenses should not exceed 33 percent of your income and your debt “ideally” should not exceed 30 percent of your income. The point here is to identify and categorize your monthly bills, credit card accounts, basic necessities, emergency funds, variable costs (fuel, for example), and splurges (daily to-go coffee, manicures, etc.), and compare those totals to your income. This will help you best determine whether you are spreading your finances too thin.
Rule 2: Find savings
Make coffee at home. Ditch the dry cleaner. Walk instead of drive. You’ve heard all of these money-saving tips before, but remind yourself to actually follow them once your printed budget shows in black and white just how many extra tens or perhaps hundreds of dollars you can save by incorporating the eliminations or reductions.
Rule 3: Set short- and long-term financial goals
If you follow the aforementioned advice to earmark no more than 63 percent of your income to household expenses and debt, then you can safely say you still have 27 percent of your income to play around with. Preferably, you set aside a portion of this remaining income to fund your short-, mid- and long-term financial goals by first determining what they are and then calculating how much you would like to fund each and when, such as weekly or monthly.
To clarify the goals’ differences:
Short-term goals address expenses in the coming year. This can mean a family vacation, an engagement ring or other special event.
Mid-term goals are two to nine years away and may involve paying for a college education or wedding.
Long-term goals are a decade or more away. This includes retirement savings and may also include a child’s college education.
Rule 4: Track your spending
Stick to your budget by tracking how you spend your money on a weekly, monthly and yearly basis. Some people use online and software budget tracking tools, while others choose to hand write their expenses in a ledger. It doesn’t matter what you use as long as the method helps you maintain your budget — or at least stay reasonably close if unforeseen financial obligations pose a temporary budget hiccup. However, you should have already accounted for any hiccups by establishing an emergency fund when establishing your overall budget.
Rule 5: Keep your budget in check
Budgets are not meant to be regularly broken, but they may require you to make an occasional adjustment based on any lifestyle changes or desires to save additional funds. Keep your budget in check by upholding its integrity and resisting splurges, especially if you are the lucky recipient of a financial windfall or an increased income.
This content was provided by National Restaurant Association partner Discover.
Disclaimer: The articles and information provided herein are for general informational purposes only and are not intended to address specific issues or problems you may have, for which you may need to obtain professional advice. The trademarks mentioned herein are the property of the respective companies to which they relate.