A personal budget is necessary to keep finances in order. (Photo Credit: CC BY-ND/vanuk/Dreams Come True)

Making a personal budget is an essential element of being financially stable, yet 94 percent of Americans wish they were better at it, says the Financial Planning blog. Building a successful spending plan requires that all regular and semi-regular expenses are accounted for, yet people still tend to forget things that can sink a budget after the first couple of months. Here are a few critical points for every consumer to consider.

Budgeting for an emergency fund

Setting aside money for something that may never happen seems pointless to some consumers, but following the Boy Scout motto “be prepared” is a wise course of action. Certified Financial Planner Peggy Cabaniss of HC Financial Advisors suggests that having six months of living expenses (not gross income) socked away is a good idea, writes Banknote. Until that goal is reached, building the emergency fund should be a priority. Try having money transferred directly from your paycheck into an interest-bearing vehicle like a short-term bond, says Cabaniss. Don’t leave it in your checking account.

Saving for something big

After your emergency fund is complete, it’s time to start saving up for the big stuff. Whether it’s a vacation, car or down payment on a house, making a budget is necessary for big expenses. Separating the monthly allotment before it hits the checking account will help keep you disciplined. However, it is important to be realistic with your savings goals when planning for a big purchase. Don’t try to save more than you can handle by cutting essential expenses.

Remember recurring expenses

Make a mental checklist of all regular and semi-regular expenses, says CPA and CFA Barry Picker of accounting firm Picker & Auerbach.

“Invariably, something shows up that throws the budget into disarray,” he told Banknote.

Overestimating a personal budget is rare, but underestimating is common. Thus, review bank and credit card statements from the past year to see what you actually tend to spend in any one category. Using personal accounting software like Quicken or Microsoft Money can make this task easier. Common trouble areas when making a budget include utilities, lunch expenses, snacks, cell phone bills, insurance, auto repairs and clothing. If you’re buying clothes for young children, using resale outlets can free up a great deal of room in the budget.

Plan for the birthdays and holidays

Resorting to credit cards during gift-giving seasons is easy, but the financially smart consumer budgets cash ahead of time in order to save a great deal in the long run. Vice President of Public Relations Gail Cunningham from the National Foundation for Credit Counseling advises that consumers look at what they spent for Christmas and divide it by 10. That’s how much to put away each month through October.

Sources

Bankrate.com

Financial Planning

Microsoft Excel is your friend when making a budget

You can solve your debt issues

There are many ways to permanently solve your debt issues. Unfortunately, none are easy, and all require personal and absolute commitment to resolution and even more importantly, personal accountability and acceptance that you are indeed responsible or, at the very least, partly responsible for your current situation. No matter how you find yourself here, there is hope and help available to get you out of financial trouble. Here are some easy changes you can make right now to get yourself out of debt.

Make your monthly budget

First, establish a realistic monthly budget. Take a hard look at where your money goes and evaluate the difference between a want and a need, cutting out discretionary spending such as dinning out, movies, cell phones, and yes, perhaps even cable television. Be creative in finding other ways to entertain yourself and your family.

Save it for the emergencies

Once you have a budget established and have trimmed out all the excess, learn to use cash when you make your purchases. This will develop a good, long-term habit and keep you from piling on more debt. Again, if you don’t have it, you shouldn’t be spending it. If you find that you must keep one credit card for emergencies, do not carry it in your wallet. Save it for emergencies only, and again, even emergencies can be handled for a lot less money when you get creative about your requirements.

If your refrigerator quits, there is nothing that says you must purchase a new one with a credit card. Check your daily newspaper for garage sales, or other listings specifically selling used appliances. The Salvation Army and other secondhand or consignment stores are great places to look for used, working appliances.

Consider your location needs

Also, evaluate your current living situation. Your housing should never be more than 33 percent of your household income. If you rent, consider a less expensive apartment. Consider your location, too. If you live in a highly desirable complex, you can bet you are paying a premium to live there. If you own your own home and you are paying more than 33 percent, then consider shopping around for lower insurance, refinancing your mortgage, and shopping around for more economical utility plans.

This is just the beginning, and there are many more ways to begin your journey down the path toward financial freedom and living debt free.

Budgeting is a lot like dieting – almost everyone has tried to do it before, but most people fail to stick with their plans in the long term. Why is this, and do these trends mean that you’ll never be able to stick to a budget yourself?

Why Budgets Fail

The truth is that most budgets fail for the same reason that most diets fail – they’re too restrictive. Telling yourself that you won’t spend a dime on coffee ever again (despite a twice-a-day Starbucks habit) is a lot like saying you’ll never eat another piece of cheesecake. Eventually, you begin to feel deprived and lose the resolve to stick with your budget.

In order to succeed with budgeting, you need to take a more balanced approach. A good budget is one that allows you to stay within your means while still allowing for the occasional splurge purchase – just like a lifetime of healthy eating will help you maintain an appropriate weight without dieting. In the following steps, we’ll look at how to set up a budget that works for you.

Step 1 – Information Gathering

It’s tough to plan a budget when you aren’t familiar with how much money is going in and out of your wallet. For this reason, most financial planners recommend that you take at least a week to write down everything you spend before attempting to create a budget. The easiest way to do this is to carry a small notebook around with you so that you can write down every purchase, from groceries and utilities to smaller sundry items, like soda or gum.

The longer you carry out this information gathering task, the more information you’ll have to use in this step of the budgeting process. If you can, try to go a whole 30 days so that you can see how your family’s spending fluctuates over a month.

Step 2 – Analyzing Your Information

With your notebook in hand, it’s time to analyze where your money goes each month. To begin, assign each expense you wrote down in your notebook to a specific category, such as “Mortgage/Rent,” “Clothing,” or “Medical Expenses.” If you’re having trouble coming up with a list of categories, do an internet search for a budget worksheet – you may even be able to find a free version you can download to your computer to organize your expenses more easily. Once every expense is assigned to a category, total the categories and determine what percentage of your total expenses come from each category.

Step 3 – Making the Tough Decisions

When you’re finished analyzing your financial information, you’ll notice one of two possible patterns – either you’re spending less than you make or you’re overspending, based on your current income.

Obviously, the more serious of the two scenarios is that you’re spending more than you’re bringing in as income. If this is the case, you need to either cut your spending or increase your earnings – relying on debt to cover your excesses isn’t a strategy that will work in these tough financial times. However, cutting your expenses may not be as difficult as you think. Reducing the number of times you eat out each month, spending less on new clothing or beauty services and reevaluating your cell phone and cable plans to be sure you aren’t paying for more minutes or channels than you use are three easy ways to trim the fat from your new budget.

Finally, don’t forget to leave a little wiggle room in your budget to accommodate the occasional fun purchase. If possible, put a few dollars from each paycheck into a separate account to be used for expenses that fall outside of your budget. And give yourself a break – you may stumble occasionally, but with continued diligence, you will eventually meet your financial goals.

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Everyone is in search of emergency money. No one wants to get caught with a sudden hospital, automobile or appliance bill and have no way to pay for the expense. In today’s precarious financial climate, it’s crucial for everyone to find a way to bulk up their emergency funds. The best way to find extra money is to budget. It’s a great way to see where a consumer stands financially and see what he or she has to do to improve their situation. Budgets are useful tools that can be created with intricate software or a simple notebook.

Despite the necessity of a budget

Despite their importance, there are still some consumers making mistakes with them. Here are the top mistakes people make with their budgets.

1.) No budget. There is still a fraction of the population that doesn’t budget at all. Keeping track of monthly income and expenses can give a consumer a clear picture of how well, or not so well, money is working for them. For example, if a budget shows that a consumer is spending hundreds on clothing and dining in a month, that’s not a good use of cash. It would be better to scale back and fuel that money into either savings or investments.

2.) Lack of math skill. Too many people fall back on a lack of math skill as their reason to not have a budget. In today’s technological age, though, there is no reason to not have a budget. Software, from Microsoft’s Money to Quicken to lesser-known brands, can do the work of organizing a budget. All the user has to do is input their spending and income. The software does the rest. For those who want a very basic budget, a notebook and pen can do the trick, too. The only skill needed is consistency.

3.) Job security. There is also a growing number of consumers who believe that if their job is secure, they can count on money coming in and don’t need to budget. Whether a consumer is working for a huge corporation or a mom-and-pop business, they are at risk. The economy is very unstable and has been for over 12 months now. Though the recession is over, having a good emergency money fund was crucial to the survival of many Americans who were laid off unexpectedly. Employers are still holding back when it comes to raises, hiring and offering benefits and no one knows how long it will take for them to return to old ways of operating.

4.) Unemployment benefits are there. The reality of government-sponsored unemployment is that it is not completely reliable. If an employee leaves their job or gets fired, unemployment most likely won’t be approved. Plus, with the recession bringing the unemployment rate up to well-over 10%, the number of benefits going out is quickly draining the government-sponsored benefit plan.

5.) Not my job. No one anticipates tragedy like losing a job or an unmanageable emergency expense, but they do happen. The only way to mitigate them is to be prepared the best way possible, and that includes having a good working budget that is up to date. It also should be working for a consumer’s specific financial situation.

A difficult look at finances

In the end, a budget can save consumers from financial disaster. For anyone looking to bulk up their emergency money fund, it’s crucial to look at revenue and expenses and then make wise decisions based on the financial position. Much of saving can be done automatically due to banks setting up auto-transfers and shouldn’t be a task to remember. It may seem difficult to look at finances with a fine-toothed comb, but it is critical if liquid assets are to be built.

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