Creating A Realistic Budget

Budgeting -- ooh, what a scary word! If you want to frighten someone whose finances are out of control, suggest that they tally up their expenses on a piece of paper. We all understand the value of such an exercise, but when it comes to the practicality of putting a budget together, we get cold feet. Budgeting doesn't have to be so painful, when you have a systematic series of steps to follow.

SET YOUR FINANCIAL GOALS

As with any other area of your life, it's pointless to start down a financial path if you don't you have some idea of where you want to end up. What is your REASON for creating a budget? Do you want to pay off your debts? Save for your kids' college education? Put money away for retirement? Make a list of your financial goals for the next 6 months, year, 5 years, 10, 25 -- all the way through to old age. And don't spend a lot of time worrying about feasibility -- if your goal is to be debt free in a year, don't think about all of the reasons why you won't be able to make it by that deadline. Just remember, where there's a will, there's a way!

CREATE THE SHEET

Start with either a sheet of legal paper -- or a spreadsheet program -- and create 12 columns. Label the top of each column with a month of the year, from January to December (duh!) Each row on your sheet will represent a different living expense -- groceries, gasoline, Starbucks coffee in the morning on the way to work. You'll have better luck remembering everything that you spend money on if you think according to categories. "Automobile" would include gas, repairs, insurance, and taxes -- while "grooming" might be divided into clothes, makeup, haircuts, and facials.

TRACK YOUR EXPENSES

How can you know what steps you need to take to reach your goal until you know exactly where you are right now? Most of us don't have a clue where our money goes -- credit cards and ATM's make it easy for money to just slip through our fingers. The first step is to create a list of STATIC EXPENSES -- things that cost the same amount every month, like rent and your car lease and student loan payments. Now these expenses are not completely "static" in the strictest sense of the word. You can reduce your rent or mortgage payment by finding a less expensive house -- and you could increase your loan payments to get rid of the debt faster. But for now, just itemize your regular monthly costs.

Next, you want to evaluate your VARIABLE EXPENSES -- those costs that fluctuate from month to month. Groceries, entertainment, utilities, and clothing all fall into this category. The great thing about variable expenses is that you control (at least to a certain extent) how much of your budget these items eat up. But some of these costs come in large and unexpected chunks -- like car repairs and medical bills. So you might need to go through your last 12 months' credit card and bank statements to get a clear idea of how much daily life costs you. And don't forget about those expenses that are paid only intermittently -- like insurance. Tally each expense and divide the total by 12, to give you a clearer idea of how your costs spread out over a year's time.

ROOT OUT MONEY LEAKS

Now I guarantee that you will not remember every expense, no matter how hard you strain your brain! Think about all of the things that you buy throughout your week without really paying attention -- snacks at work, a magazine when you stop for gas, that cup of coffee on your way in every morning. And don't forget about the expenses you are racking up because of financial disorganization -- interest charges on your credit card debt, late fees because you forgot to return that movie on time, overdraft charges because you didn't balance your checkbook. All of these fall into the category of unconscious spending. You just do it because it's a habit. And although you think that a dollar here or fifty cents there is insignificant, it can really add up.

So for a month, record every penny that leaves your hand, in the form of a check or cash or a credit card transaction. This may sound like a huge challenge, but you can do it! Make it convenient -- my husband stuck a small pencil and piece of paper in his wallet so he would be reminded to make a note every time he made a purchase. You will be stunned when you see where your money is really going! My husband was shocked to find out that he was spending almost a hundred dollars a month on that morning coffee (am I picking on Starbucks too much?!) What's your vice -- eating out when you are feeling lazy? Buying every new CD or magazine that comes out? I'm not suggesting that you completely eliminate these habits -- just that you decide how often you can reasonably afford to indulge and still reach your other financial goals.

DON'T FORGET YOUR DEBTS

It's also important that you have some idea of your liabilities -- debts that still have to be repaid. Did you figure these payments in with your monthly expenses? If you are only counting the minimum monthly payment, you will never pay your debts off. You may not be able to do it right now -- but after we get your budget in order, the goal is to pay at least double the minimum amount on at least one of your liabilities each month. You should start with the credit card or loan that has the highest interest rate -- then tackle the next highest after the first debt is paid off. And if you can afford to pay more than double, go for it. You aren't really free to start working on other financial goals until you know you are debt free.

TALLY UP YOUR INCOME

Do you really know how much you make? The tendency is to quote whatever is printed on your employment contract -- to say, "I make _____ a year." But after taxes and Social Security and any other items that are deducted from your check, what are you actually bringing home? Take a minute to really examine all of your sources of income and calculate an honest total -- you can't have a realistic budget without it!

WHAT'S THE VERDICT?

So, comparing income to expenses, how does it look? If you came out in the black, congratulations! How much do you have left over? Regardless of how small or large the amount is, start stashing it away into savings and investments! Your choice of how to proceed will depend on your financial goals -- investing for retirement will involve less liquidity and more risk than just saving for next year's vacation. The main thing to remember is that you should build your savings and investments into your budget just like a bill -- and take care of these long-term responsibilities FIRST, before other costs. That's the secret to good financial management.

Now, if you ended up in the red, we need to talk. The first step is to look at spending which can be reduced or even eliminated. Start by examining those "spending leaks" -- if they give you pleasure and satisfaction, dandy. Certainly late fees and interest charges don't fall into this category! But you can still overdo a good thing.

Ask yourself if eating out 4 times a week gives you 4 times more pleasure than doing it just once. And could you get as much pleasure if you cooked a good homemade meal? Is the ridiculous mortgage on that 10,000 square foot house worth it? Or could you be just as happy (or even happier with less financial stress) in a place half the size? Also look for convenience expenses -- things that we spend money on because we are overwhelmed, too busy, or just worn out.

Perhaps by re-evaluating how you use your time, you might discover that many of these expenses are just symptoms of misplaced priorities. When you arrive at a place where all of your spending decisions are DELIBERATE ones, you will find yourself several steps and quite a few dollars closer to a balanced budget that allows you to reach all of your financial goals.

Ramona Creel is a Professional Organizer and the founder of OnlineOrganizing.com -- a web-based one-stop shop offering everything that you need to get organized at home or at work. At OnlineOrganizing.com, you may get a referral to an organizer near you, shop for the latest organizing products, get tons of free tips, and even learn how to become a professional organizer or build your existing organizing business. And if you would like to read more articles about organizing your life or building your business, get a free subscription to the "Get Organized" and "Organized For A Living" newsletters. Please visit http://www.OnlineOrganizing.com or contact Ramona directly at ramona@onlineorganizing.com for more information.

---

Bankruptcy Your Best Bet?

Filing bankruptcy is a common practice among the U.S. Over 2 million people file for bankruptcy every year. So many families today are swimming in debt, which... Read More

What Is A Chapter 13 Bankruptcy?

Many consumers that are bogged down in debt frequently turn to bankruptcy as a form of restoring their financial status back to a zero balance. Unfortunately many... Read More

Bankruptcy 101

Bankruptcy still remains a mystery in the eyes of many consumers. This article will review the facts of bankruptcy as per written law.Some of the information in... Read More

Tips For Saving Money

Still living from pay to pay? Or envying those great wealth accumulators and wondering how they did it? Every month you make a resolution of saving some... Read More

How to Avoid Bankruptcy

Bankruptcy is a legal way to offer folks with high interest debt a fresh financial start in life. In case you are considering personal bankruptcy as an... Read More

Establish Money Saving Goals For Added Success

Having something tangible to strive towards can work wonders for your money-saving efforts. To those of you that have already been actively implementing money-saving tips in order... Read More

How To Get Out Of Debt

If you have found yourself in a position where you are in serious debt and cannot think of a way out of the situation, then take a... Read More

Think for a Change

I'm not sure where it originated, but I've heard it repeated time and time again: Insanity is doing the same thing over and over and expecting different... Read More

The Debt Free Lifestyle

Many people have been taught that you cannot get ahead without debt. We are also inundated with advertising telling us we can have anything we want. All... Read More

How To Avoid Medical Collections

With medical collections costing doctors millions upon millions of dollars in unpaid bills and collection fees, many people have just one question: Who are these people who... Read More

5 Ways to Get Out of Debt

It has been said that everyday more and more people in the world are getting into unsecured debt. Once reason for this is the relative ease in... Read More

IVA Advice

An IVA (individual voluntary arrangement) is an alternative to bankruptcy introduced by the government as part of the Insolvency Act 1986. This article provides an overview of... Read More

Getting Past The Idea Of Budgeting & Saving Money

I'm sure you'll agree that budgeting, saving money, and eliminating debt are very appealing ideas. If effectively tackled, these goals can secure your financial status for the... Read More

Whatever You Do....Dont Save Money!

No, that's not a misprint. Even though falling interest rates are good when you want to get a loan, they are bad for people with savings accounts.In... Read More

Individual Voluntary Arrangements- A New Alternative to Bankruptcy

This May, the Department of Trade and Industry in the UK found that there were 10,091 bankruptcies in the first quarter of 2005. This represents an increase... Read More

Should You Join a CCCS - Consumer Credit Counseling Service for Debt Relief and Financial Freedom?

Do You Need to Join a CCCS - Consumer Credit Counseling Service?Are you in a "debt hell"? If you are unsure, ask yourself these questions:Do you have... Read More

Five Hot Tips To Get Out Of Debt Forever

The financial and psychological burden of being in debt causes us and our families continuous emotional stress. That stress eats away at the quality of our lives... Read More

How to Get Money When You Are Broke

(Money You Don't Have to Pay Back) 1. One way to get money is to have a yard sale and sell itemsthat you are getting ready to... Read More

Senate Passes New Bankruptcy Law

The United States Senate passed a law on March 10, 2005 that changes the bankruptcy laws in America. It is expected that the House of Representatives will... Read More

Secrets to Why Debt Reduction is So Vital for Your Financial Health

Living with debt is never a good idea if you want to make long-term financial plans. Every cent you use to service debt is money that could... Read More

Bankruptcy Interest Increases as Deadline Approaches

Congress recently passed sweeping legislation that will significantly reform American bankruptcy law. Designed to eliminate the "convenience bankruptcy" of compulsive gamblers and the financially irresponsible, this legislation... Read More

Home Equity ? Foreclosure Often Not Necessary in Current Market

While driving around your community, you may have seen signs posted on telephone poles that offer "foreclosure help." These seemingly generous offers to help financially troubled homeowners... Read More

Is It Possible to Be Sued For My Debts?

It is possible for creditors and third-party collection agencies to use legal means as a way to collect debts. The likelihood of being sued or having your... Read More

Credit Repair - Understanding The Basics

What is Credit?Credit means that you are using someone else's money to pay for things. It also means that you are making a promise to repay the... Read More

British Families and Debt

There is current concern from the Bank of England that British families are getting deeper into debt, however, it has been said that lenders are putting themselves... Read More

New Bankruptcy Law ? Where?s the Consumer Protection?

On April 20, 2005, President Bush signed into law the Bankruptcy Abuse and Consumer Protection Act, a piece of sweeping legislation that brought about the most sweeping... Read More