Effective Ways to Set a Budget

 

The word budget comes from the French word “bougette”, or small bag.  The women would put their coins into small bags, allocating funds for different expenses.

 

In order to set a realistic budget, you first need to know how much money you have to work with.  You don’t have to put your money into little bags, one for rent, one for food, one for insurance, etc., but it might be helpful to think along those lines.

 

Typically a budget is for a month’s time.  The money you start with is your “net income”, which is how much you get paid after your employer takes out for taxes, 401K, insurance, etc.  If you’re self-employed and have to pay your own taxes, remember that your income isn’t all “yours” by budgeting for the items that an employer would normally deduct for.

 

When setting a budget, remember that you are making important decisions regarding where your money goes. You have to allocate for your basic needs (food, shelter, clothing, transportation, etc.), as well as necessary payments that you have committed to in the past (debt payments for example). 

 

Once you have listed all the expenses that you must pay, and the income that you will be receiving, the remainder is what’s left to spend in other ways (including savings). 

 

By setting a budget, you will be less likely to spend more than you make.  Remember that a credit card should not be used as if it were an extension of your income.  It’s there for convenience and emergencies. Treat it that way and you’ll be much better off in the long run.

 

Budgeting can be tedious, but nevertheless what comes after the process is a truly rewarding outcome. So, to those who do not know how to set a budget effectively, here are 10 ways to do it:

 

1. Have a goal.

 

Nothing could be more effective to propel a person to set an effective budget than to have a basic goal. This could mean a new car, an updated model of a mobile phone, or even preparing to buy the house of your dreams. Whatever it is, the most vital part in making a budget is to aim toward your target.

 

For example, let’s say your primary goal in life is to get together enough savings to afford a down payment on a house.  You absolutely hate the apartment you’re living in, and you desperately want to move. This year, you received a $2,000.00 Christmas bonus from your company.  It sure would be nice to take a week’s vacation in the Caribbean, wouldn’t it? But once you think about that goal of the down payment on the house, don’t you think you’re more likely to put that $2,000 into the house account, which will give you a lifetime of pleasure, rather than blow it on a vacation that lasts a week?

 

2. Monitor your cash flow.