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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Sunday, April 23, 2006

More on Budgets

When deciding on your finances and creating a budget of your income versus your expenses it is important to be through and accurate and honest will yourself.

First figure out how much money you bring in (gross and net). Then create an Excel Spreadsheet (or any spreadsheet software you have) with columns detailing the finances you spent and another for a new amount of how much you would like to spend. Start with your major expenditures like
Shelter. Here you need to include rent or mortgage payment, gas, electricity, garbarge, water, cell phone, telephone, assessments (if applicable) and property taxes. Next, you should list Food. Here you can list what you spend on groceries, school and work lunches. Transportation is important as well. If you have a car(s) enumerate the car payment, insurance, gas and repairs. Then you can move to Other Basic Expenses. This can include various things like child care, child support, clothing, haricuts/personal care, insurance (life, health, disability, other), laundry and dry cleaning, medical and dental, newspapers/magazine/cable tv, school expenses, taxes. Hopefully you can Save some money and that is the next category. Put a row for emergencies, long-term savings, and retirement.

Next is the section for spending that can be curbed or controlled and this is where you will need to make decisions on your finances and spending. The first thing under your monthly expenses will be
Credit card payments. If you are in debt and have high interest rate credit cards your first priority should be to pay them off as soon as possible. So if you have a minimum payment of $100 and you can pay $300--then do it. There is no better investment if your card is at 18% than paying off that debt. Next you might have some installment loans--list them here. They might be a college loan or you are still paying off that furniture you bought last year.

The nitty gritty of your finances is next on the spreadsheet.
Alcoholic beverages is one--if you drink. This can consume a large percent of your finances if you allow it to. I you drink and there is any way to cut the spending on this then do it. Then you have things like CDs, downloaded music, music supplies, newsstand purchases and subscriptions. Cigarettes and tobacco are similar. As you know these products are getting more expensive and are tough to give up, but giving them up can help you save in many areas (health and life insurance for one). Charitable contributions are great, but if you cannot afford them then think about doing volunteer work instead. Children allowances (if applicable) is next. Pay yourself first because in the long run it will be much more beneficial to your kids than giving them an allowance. Club dues and Expenses need to be added as well in addition to any professional organizations you belong to. Eating out and ordering in are fun and convenient as well as necessary sometimes, but often this is an area that people can save just by cooking at home a little more. No one wants to be seen as a miser when giving gifts, but with a little more searching and creativity you can save. Internet access fees are expensive, but most need this service and if you do, try to find a way to save. Movies, plays and concerts are another. Rent a movie instead of seeing it in the theater--remember it all adds up. With Pets and pet food there is not much you can do if you already own a pet to curb the expenses unless you go overboard in conspicuous consumption for your pets. Snacks at work, convenience stores and vending machines add up if you do it often. At work you can bring some snacks from home so you do not end up spending $5 a week ($250/year) on the vending machine at work. Sports can be another expensive item if you like to attend live games--tickets are no longer easy to afford. Vacations are often something we all like to do, but if you need to cut some fat out of your budget temporarily you can go an extra year if you need to without an extravagant vacation. Lastly, think of any other miscellaneous expenses that might come up and list them as well. Categorize everything and you can see how much of your money goes to an individual item as well as an entire category. Examine this information and try to cut some unneccesary items if you need to have less money outgoing.

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