Why You Should Know How to Budget Your Money

Written by Anthony Garcia   // May 6, 2011   // 0 Comments

Budget Your Money: MyDolr.com

Ever wonder what makes some businesses succeed while others fail? These same questions can be asked about individuals, why do some succeed and others run into financial trouble? There are many reasons why businesses and individuals succeed while others fail and go into financial hardship, but there is one important thing that businesses and individuals that are successful would recommend to anyone – know how to budget your money. There are many things you can’t control in life, but setting up a budget is one that can go a long way in helping you become successful as an individual or a business.

Creating a budget will help you organize and manage your finances.  There are many websites, software programs, and resources available to help you budget your money. Many computers come with Microsoft Excel which is another way to start a budget and a simple way to start creating a budget.

The first step is to account for your total income or earnings. This should be a very simple step since this is one of the most important aspects of our lives.

Income Budget - MyDolr.com

The second step is to list all of your expenses. The more detailed you are with your expenses the more accurately you can organize and manage your finances. Since life is complicated you can’t always account for everything you may need to spend money on. For instance, a tire on your car blows out and you need to buy a new tire. Well, in this case you may want to create a miscellaneous category for any potential or unforeseen circumstances you may need to spend money on.

Expenses Budget - MyDolr.com

A simple calculation of taking your total income or earnings and then subtracting your expenses will tell you whether you are in the red (negative) or in the black (positive). If you find yourself in the red (negative) you’re going to have to know how to budget your money better. Simply put, you will have to start cutting some of your expenses so that you’re back in the black. On the other hand if you’re already in the black (positive) you’re in good shape.

Cutting Back on Expenses

If you are finding yourself in the negative with your budget every month then the most important thing you can do is start cutting back on expenses. Start by looking at what is unnecessary. If you’re finding yourself spending a lot of money on eating out, you may want to consider a cheaper alternative such as the grocery store.  Personally I love Trader Joe’s, they tend to have a good selection of food, and it’s relatively cheap. Another good option is to go to a farmers market in your area. They tend to have the best produce and they don’t charge an arm and a leg like big chain super markets.

Saving and Investing

If you want to have a fairly well balanced budget you should aim for saving about 20% of your paycheck. According to Elizabeth Warren and Amelia Warren Tyagi in their book “All Your Worth” your savings should be about 20% after taxes have been paid on your earnings. Approximately 50% should be put towards your needs and 30% towards your wants. These are very good guidelines on how to manage your money.

With respect to investing your money you should always consider opting-in to a 401k plan if you’re employed by a company that offers this as a benefit. If you work for a company that provides you with a 401k benefit plan you should take advantage of this plan and maximize your contributions. The benefits of a 401k are that they are pre-tax contributions, and in many cases the employer will contribute to the plan. If you are self employed there are other plans such as an IRA, which there are a few different types, or a Roth 401k that you can utilize to try to meet your retirement goal. If you are a government employee you would need to look into a 403(b) plan.

Dealing with Credit Card Debt

If you find yourself in a situation where you have too much debt there are many solutions that can assist in you resolve your debt situation.  The first step is to assess to what extent you’re in debt. If you’re in a situation to pay more than the minimum monthly payments on credit card debt or unsecured loans then the snowball effect may be advisable. Simply put with the snowball effect you pay more than the minimum payment you are making on the account with the lowest balance. Once you’ve paid of that credit card you apply those payments to the next card, so on and so forth until all your credit card debts are paid off. The most important step to assessing the severity of how much debt you have is to know how to budget your money. Once you’ve done the budget you’ll be better off determining how to alleviate credit card debt. At this point you will be able to determine whether you can resolve the debt on your own or whether you require third party assistance from a debt consolidation company or bankruptcy.

Monitor and Review your Budget

It is important to know how to budget your money, but it will be even more important to continually monitor and review it. As life changes so will your budget. May be you want to get married, buy a house, have a child, or whatever the case maybe your budget will have to be reassessed over and over again depending on the life choices you make or the choices life makes for you. Be diligent so you can stay on top of your money.

 


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