I’ve received several requests from readers to talk about budgeting. Here is a basic overview of the steps to budgeting. Next week I will feature Part 1 of budgeting: how to start budgeting, steps 1, 2 and 3 of this list.
1. List expenses. Keep track of all expenses for at least one month. Make a list of fixed expenses, like mortgage and flexible expenses, like entertainment.
2. Record all sources of income. Income from work, investments, etc.
3. Subtract expenses from income. Do you have a budget surplus or deficit?
4. Plan your budget. If you are spending more than you are making, find places to make cuts and review your budget.
5. Insurance Plan. Do you have enough insurance to cover your family in case of disaster. Review your life insurance and medical plans.
6. Debt Reduction Plan. How much money can you set aside to reduce your consumer debt? Let’s make a plan to pay it off quickly with the lowest interest paid.
7. Savings and Investment Plan. An emergency savings account is essential to pay for the unexpected.
8. Implement Budget. Now that you’ve crunched the numbers and determined how you will spend your money, do it. It’s important that everyone in the house is involved in sticking to the budget.
9. Assess Budget. At the end of every month, review your spending and see if it matches your budget. If not, go back and review if the amounts allotted are reasonable or what needs to be done to stay on track.
10. Review budget on regular basis. A budget is an ongoing process that needs to be reviewed regularly to stay on track with your financial goals.