Proper Budgeting is the Heart of any Financial Plan
by Ellise Walsh

No matter what your level of income, creating a realistic budget plan, and sticking to it, is the most important step in financial planning. After all, before you can put money away for a rainy day, you have to have money available, and that means getting a handle on your expenses.

Many people, even those earning very high incomes, have never taken the time to learn how to budget. For many people, budgeting means fiscal restraint and not being able to buy the things they want and need. A good budget plan, however, allows the consumer to meet his or her needs and desires while still saving money and planning for the future.

One of the most eye-opening exercises for any consumer is to write down every expense you incur for a week – that means every cup of coffee, every lunch, even tank of gas, everything you spend. Add it all up at the end of the month and you may be surprised as how much money escapes your wallet unnoticed. This simple exercise in fiscal discipline is an important first step in creating a budget plan.

Of course we’re not suggesting that you forgo that daily cup of coffee or occasional lunch or dinner out. However, simply by focusing on those little expenses, it is surprising how much extra cash can be recaptured. This “found money” can be used to pay down high interest debt, invest for the future, or even to fund that much needed vacation.

After you have established your baseline weekly spending by tracking your daily living expenses, add in your recurring bills like the rent or mortgage, phone bill, electricity bill, etc. That will be your estimated monthly expenditures. You can track your expenses and bills for a few months to come up with an average.

After you have a good idea of your average monthly expenses, you can compare it with your monthly income and get a good idea of how much you can put away in savings and investments. Of course, if your monthly expenses are more than your income, you may need some help trimming your debt and getting your spending under control You may even need to take on a second job to close the gap and pay off the debt.

If you do have money to invest though, it is important to put money away month after month, no matter what. As a matter of fact, most financial planners suggest that you pay yourself first. That means that every time you get paid, you automatically put away a percentage of your paycheck into your favorite mutual fund, or at least into your savings account. Paying yourself first makes the payment automatic and painless. Just as you rarely notice the taxes, insurance and other items that are routinely deducted from your paycheck, you will begin to make this automatic investment as a matter of routine. And you may be surprised at how quickly that nest egg can grow.



To further your budgeting, download our Free Budget Planner for Excel.



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