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Budgeting 101: Creating a working budget

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It all starts with creating a budget. According to Merriam-Webster dictionary, budget is a plan for the coordination of resources and expenditures. Simply put, it is a breakdown or a list of your income versus your expenses.
Having a working budget is a necessary tool for anyone in order to avoid drowning in debt. It is the most practical way of knowing how much money you have and how to spend it the way you want it. The cost of living, which means one’s basic expenses that include housing, food, car payments, etc., is increasingly getting expensive while your net wages remain static.
You need to spend smartly and stretch that hard-earned dollar whether the economy is in recession or not. You need to care when your money goes out and where it goes as much as when your money is coming in. Controlling your spending is the key to being debt-free and start earning wealth.
These simple steps should help you create your own budget. These steps will help you exactly how much you have and do not have 1-2 months in advance.
1. First things first. You need to know how much you are making on a monthly basis. List all your sources of income monthly. I suggest using net income so you know exactly how much you are getting. It will help a lot if you have a fixed monthly income but if not, just average conservatively so you don’t over budget.
2. Now you need to identify how and where you are spending money now. List down all your monthly expenses and get all the statements you can get so you can average up your monthly bills. Include everything you can think of: mortgage, car payments, insurance, utilities, cellphone, cable, groceries, dry cleaning, dining out, daycare expenses, student loans, leisure, etc. You might be surprised where your money goes. When you have everything, jot down their due dates.
3. Evaluate your current spending versus your income. Sum up your expenses and your income. If your end results show more income than expenses then you are off to a good start. You just need to evaluate where to allocate the money based on your goal – whether paying more towards mortgage, credit card payment, or investing more in your 401k or IRA account. If your results show more expenses than your income, then you need to start changing your spending habits.
4. Before creating a plan, you need to agree with your husband or partner on your plan of action so that you are accountable to each other. Set goals that take into account your long-term financial objectives. Is it paying off your credit card? Putting more money towards your mortgage? Starting a savings account? It may be hard at first but taking small steps will help. Decide if you want to cut down on groceries, dining out, shopping, or what seems easier to accomplish in order to free up money to pay off debt or reducing your expenses. Your goal should be to reduce your expenses. Once you have set your goals, you need to be diligent in tracking your spending on an ongoing basis that you find most helpful – daily, every other day, or weekly. The aim here is to make sure your spending stays within the limits you've set.
5. Now that you have a goal or goals, decide on who is going to track your budget and how to track your budget. Whether it is your or your spouse, or both, you need to account for everything you spend. You also need to choose how you track your spending – using software programs like Quicken or using a spreadsheet or a notebook is entirely up to you.
6. You now have your expenses and income lists. Now it’s time to track your spending on a monthly basis. You can either start right away or start at the beginning of the month. Use your budgeting method daily or weekly, whichever you want to prefer. This is helpful if you use a debit card like we do so you don’t get an overdraft. This will also help you track your spending to make sure it stays within those guidelines. The more you see where your money goes, the less inclined you are to use your debit card.

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