Best Charts To Present Financial Data To Non Finance Peole Budget Plan – How to Create a Budget in 4 Simple Steps

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Budget Plan – How to Create a Budget in 4 Simple Steps

Budgets don’t work. What? Then why the heck am I writing an article on how to create a budget? Budgets don’t work for the same reason diets, or new years resolutions don’t work. They appear to be too restrictive, oh yeah, and were lazy. We are inherently lazy and we like things to be easy rather than difficult, this includes me. I myself don’t like to use the “B” word, I prefer to call it “a guideline for money so that you don’t have to be a greeter at a department store during your retirement”. I’ll give some personal finance help and show you how to create a working guideline in 4 simple steps

Let’s be serious, if you want to go forward with your finances, you’re going to need some kind of guideline or general plan. If you don’t want to go forward, you probably would not be reading this article. So I am going to assume that you would like to move forward, or at least gain some knowledge or insights.

Most people think they have a problem with debt. However, if you were to look at the actual problem it’s not debt, but rather how money is managed. A lot of people seem to have a problem with how to manage personal finance. If you don’t want to go into debt, don’t spend more than you make. The purpose of a budget is to achieve this. Here is a simple 4-step program that you can use to understand where your money goes, as well as where you should allocate it: (I am sorry, you will actually need to do a little work).

1. Find out if you are spending more than you make. The best way to do this is to use a software program that will help you calculate and organize your numbers. You can find your own or you can use the free budget spreadsheet I created. You can get this on my blog at the address in my signature.

2. Compare your numbers to what a properly balanced budget should look like.

3. Make the adjustments necessary to bring your numbers as close to the pie chart as possible.

4. Review and update the income statement sheet at least every quarter. I update mine monthly and print out the sheet and put it into a binder.

The hardest part of this process will be completing it for the first time. You probably won’t have all your numbers and you will most likely need to do some digging. However, once you get the income statement sheet filled out once, it will be very easy to update after that. It takes me about thirty minutes a month to work through mine. You might also have a difficult time with step 3. I will cover tips and strategies in later articles to help you with all of the changes you will need to make.

The guideline below shows what the proper allocation of your money should look like:

Housing 35% This should be you biggest category when looking at your expenses. This section includes: Mortgage, rent, taxes, utilities, insurance and repairs and renovations.

Living Expenses 20% You have the most immediate control over this section. This section contains most of your variable expenses (expenses that are not fixed). This section includes: Eating out, vacations, gifts, entertainment, clothing etc.

Transportation 15% In this section include all expenses related to ANY transportation you take. That could be your own vehicle or public transportation. This includes: Car payments, insurance, gas, public transportation and any parking tolls/fines.

Debt 15% Here is where you have all your fixed debts except for a mortgage and car payments. This includes: Student loans, personal loans, credit cards and lines of credit.

Savings 10% This is where you should exercise the concept of pay yourself first. This includes: RRSP’s, personal investments and cash into an emergency account.

Other 5% This is my favorite section. I call this my guilt free money. What you do is take out 5% of your net monthly income, divide it by 4 and that’s what you can spend each week. You can spend this on whatever you want. The only rule is that you must spend it all! At the time of the writing I currently spend $70.00 a week and it’s mostly on treats and eating out. I will mention this; you should only be doing this if all the other sections of you pie chart are within the guideline.

Remember, this is a working guideline. Some months might be off balance or a little out of whack. This is why you review it every month, or every quarter a least. If you find that you are way off of the guidelines, that’s ok, at least you now know. If you are willing to make the changes, this guideline will help show you where those changes may need to be made.

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