Free Investment Advice

In these times of economic crisis, having a budget is a key to to stay on track with the money at hand. A budget should not be seen as a restriction, telling you what you can’t spend, but rather as an empowering tool, letting you know what you can spend and giving you the means to have money when you need it.

Evaluate Expenses

The first step in creating a household budget is evaluating expenses. For two months, make note of each expense you have. Most of this record keeping may be done by your bank or credit card company, if you pay most of your bills and expenses with a credit or debit card or checks.

However, if you use cash for many of your expenses, you’ll need to track receipts for two months.

As you go along, write down your expenses. Make up general categories to begin with, such as utilities, groceries, repair, automobiles, housing, insurance, etc.  As you evaluate your expenses, you may find that you need separate categories for entertainment, dance lessons, sports, orthodontia or particular hobbies. You’ll likely want a travel or vacation fund.

Once you have established categories, add up your expenses in each category for the each month separately. See if there are unusual events that caused costs to be higher in a particular month.

Create a Plan

Add up the amounts from all of the categories, and see where you stand. Hopefully the amount is lower than you bring in each month, but for many people, it is higher.

From this evaluation, develop a monthly amount for each category. Looking at your income and each category, develop a spending amount for each category each month.

You may have to cut expenses in several categories or increase your income to accommodate overspending. Generally, cutting expenses is the first line of defense against over spending. When you put all of the expenses together, you can usually see places that you can cut your outgo.

Using a budget is easier if you use an electronic program to track expenses and quickly keep a record of where you stand in each category.

Maintain Records

A budget only works if you work at maintaining it. You’ll need to find a way to note each expense and keep track of budget categories.

Many people find that making the commitment to enter expenses each night or once a week works for them.

If you use an electronic checkbook or budget tracking program, then you can keep track of categories electronically. If not, you can easily set up a budget on a spreadsheet program or on a simple chart in a notebook.

The important thing is to track expenses and always know where you are in your spending plan so that you can reach your long term financial goals.