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Friday, October 7, 2011

Basics of Budgeting

Budgeting is the base for all financial plans. Irrespective of whether you are earning through paychecks on a monthly basis or are earning a decent six-figures income every year, you must know where your money goes if you wish to handle your finances wisely. Many people believe that budgeting is all about restricting on what you spend and eliminating the fun part from your life, but this is not the fact with budgeting. In fact, budgeting is all about acknowledging how much funds you have, where you spend and then coming up with a plan to distribute it prudently.
Basics of Budgeting:
Can you imagine a business turning out to be successful if its owner fails to keep a track of the earnings and expenses? The same is with personal finances. If you are clueless about how much money is flowing in and where you have been spending it, then it might pose a serious threat to your financial condition.

Track your Income:
The initial step in coming up with a budget is to find out how much money you possess. This is very easy and usually requires you to have a look at your paychecks. If you are a married person, then you must include the income of your spouse too. Moreover, apart from your regular income, you also need to include in your plan other income sources that you might have such as income from any side business and dividends to name a few.
Track your Expenses:
Now as you might have got an idea of how much money is coming in, it is time to have a look at all your monthly expenses. You can start with your fixed and regular expenses such as insurance premiums, taxes, debt, car payments, mortgage or rent. For most of the people, these expenses are usually fixed, which means you cannot alter the amount that you have to pay every month.
After listing all your fixed monthly expenditures, you need to track where rest of your money is going. You can check your current bank statement here to get a much better picture of your expenses. Now, note down how much you spent on things such as subscriptions, entertainment, groceries and other utilities. The worksheet that you create here will help you to keep a track of all such expenses.
Bottom Line:
Now you might have all the details required to help you out in creating a budget that suits your finances. Next, calculate the total for your monthly income as well as expenses and subtract the expense amount from the total of your income, you might either get a negative or positive figure. If the figure is positive, then you are budgeting well and if it is negative, then you need to pay some heed towards your finances and spending.
Author writes many articles on Budgeting. More information can be found at Pay Off Debt.

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