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Saturday, February 1, 2014

10 Tips to Preparing a Budget

Your road to financial freedom starts after you have determined how much you earn and knowing where you spend your money. Most of us simply rely on the next payday to pay for our monthly expenses. While many people are aware of the importance of saving, very few make a budget and even fewer people actually stick with it. Whatever your reason for not preparing or accomplishing your budget, I can assure you that the benefits of having one is more important. You’ll be surprised that majority of individuals who earn a steady income doesn’t even know how they spend their money! Do you really want to stay clueless with your finances, and ask yourself after every payday where did your money go? The key to successfully manage your finances depends on your ability to accomplish your budget.

Here are 10 useful tips how you can start preparing your own budget:

1. Set a clear goal on how much you want to allot for Savings & Investing. Remember: Your money equation should be
        Income - Savings = Expenses
And not:
        Income – Expenses = Savings

2. If you are still not sure how much you wish to allot for savings and expenses, you can simply follow the standard 70-20-10 rule in money:
        70% = expenses       20% = savings        10% = tithe & donations
3. List down your expenses and categorize it as “unavoidable” and “avoidable”. Unavoidable expenses comprise mainly of basic necessities that you can’t live without. Categorize it as avoidable if it can be controlled or eliminated without incurring any additional expense.
4. Stay conservative on your income but try to list down all your expenses as much as possible. You will be pleasantly surprised if you end up with larger savings and smaller expenses.
5. Reassess whether your "unavoidable" expenses are really unavoidable. There may be items in there that you can simply live without.
6. Try to limit your avoidable expenses. If you go out and watch movies every Friday, why not cut down and do it every other week instead? You should also be aware of your unplanned “small” expenses. Taken in aggregate, these are often the reason why we exceed our budget.
7. Find ways to earn income outside of your main profession. If you have a hobby, there are actually ways you can monetize your talent.
8. If you missed your target savings this month, try to make up for it the following month. On the other hand, if you have consistently surpassed your savings target, It may be a good time to treat yourself! You deserve it.
9. Don't be too hard on yourself if you missed your budget. Your savings expectations may just be too high and does not match yet with your level of income.
10. Assess your budget ideally after three to four months to know how realistic your savings goals are.
Now that you have a good idea on how to wisely prepare a budget, the next step is to act now and start doing it! To aid you in preparing your very own budget, I provided a FREE monitoring worksheet to get you started! Just click here to download the file.

Maintaining a budget can be really tedious, but it is the most effective way of tracking how we spend our money. If you don’t make a budget, you may be spending above what you earn without even realizing it. So if you are really serious in your goal of achieving financial freedom, act now and start preparing yourf own budget.

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