Since the recession began in 2008, the economy has tanked on various occasions and many lives have changed because of it. Many americans have found themselves looking for a job, trying to figure out how to keep up with house payments, affording college for their kids, and figuring out how they can enjoy life. Since the recession, I would imagine many people have thought more about their personal finances and how the changes I have mentioned above have affected or will affect their budget.
As some are re-evaluating their budgets, others are now making a more conserted effort to focus on their personal finances and are working to create a budget that will help them make ends meet. In my opinion, the hardest thing to do is actually begin a budget. The beginning process can be time consuming, however, once you have something in place, the process is relatively simple. You must make budgeting a habit if you want it to work. Once you have the process in place, it takes a little bit of time to keep it updated and you will be thankful you have taken that time to manage your personal finances. To help with this new process, I have a couple suggestions for those working towards a budget that might help them get to where they want to be. I have come up with 3 things to brainstorm as you begin your preparations to owning your finances and not letting your finances own you.
1. Goals - What are your short and long term goals? Everyone has financial goals in mind that they would like to achieve. Really, the best way to make these goals happen is to follow a budget so you are not spending money that you would normally need to pay your bills. As you brainstorm about your goals, prioritize them based on your current situation. For example, if you just graduated from school and would like to buy a house, may be budgeting to $200-$300 a month may be a good short-term goal. Set long-term goals as well such as retirement or a nice vacation.
2. Income - What are your sources of income? There are two aspects of income that you need to brainstorm. The first is your gross pay. Your gross pay is the amount of money you make before taxes, insurance, and other items are taken out. For example, if you make $60,000 a year, that would be $5,000 a month and if you are paid bi-monthly, your bi-monthly gross amount would be $2,500. The second is your net pay. Your net pay is the amount that is left over after your employer takes out taxes, insurance, and other items. For example, let's use the example of your $2,500 bi-monthly gross pay. Your taxes are $100 and your health insurance is $150. Therefore, your net pay would be $2,500 - $100 - $150 = $2,250. The $2,250 is the amount of money you have to take home and use to put in your savings account, pay your bills, and enjoy life. Remember to only include income that is guaranteed in this brainstorming exercise. For example, don't include a bonus you think you will receive or a tax refund you hope Uncle Sam will send you. If you budget with guaranteed income, then when you do receive a bonus or a nice tax refund, then you can put that whole amount into your savings account or better yet in a mutual fund or a Roth IRA.
3. Expenses - What are your expenses? Brainstorm how you spend your money. Everybody is different, however, everybody has some expenses that are similar. Similar expenses would be your mortgage/rent, utilities (water, sewage, gas, electricity, trash), food, fuel (if you have a car), and home/car insurance. Make sure you include not only these categories but everything else. For example, if you like to go out to eat, think of how much you spend a month going out to eat or houw much spend on entertainment such as going to the movies or enjoying a night on the town. Also, add in any debts you may have outstanding such as a car payment, hospital bills, credit cards, department cards, cell phones, etc. Think about EVERYTHING so you can get a rough picture of where your hard earned money is going. As you think about these expenses, keep in mind that when you set up your budget, you will want these expenses to be less than what you bring in on a monthly basis.
I hope you take this brainstorming exercise seriously as this is a critical step in getting your budget set up. This is where the time comes in. If you think you don't have time, think about these items on your way to work, during lunch, at night when you can't sleep, or when you are watching T.V. If you have questions or comments, please leave a comment or send an e-mail to debtcents@gmail.com.
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