Budgeting is a necessary part of staying financially solvent --- both in a business and at home. Maintaining a few simple habits can help you to remain aware of where you are financially. This awareness is an important foundation of managing your money sensibly and staying out of debt.
Knowing exactly where your money is coming from and where it is going is the first step in mastering the art of budgeting. A simple notebook with columns for income, expenses and balance provides you with an ongoing record that will show you your finances in a glance. Carry a smaller notebook whenever you go out and write down everything that you spend. Noting small purchases, such as newspapers and coffee, will make you aware of how much you spend on them each month. These items may be costing you thousands of dollars a year.
Distinguishing Needs and Wants
The purpose of a budget is to help you provide for yourself without going into debt. Some people get into financial trouble when they fulfill their wants before their needs. Buying a new wide screen television in the middle of the month, then not being able to pay your rent the next month makes poor financial sense. Analyze your budget records to determine what percentage of your money is going to needs and what percentage to wants. If you find yourself in financial trouble, you will then have an idea of where you may most easily cut back.
Rationalize your budget by separating all of your different expenses into categories. This is most conveniently done after you have kept a record of all your expenses for a year. Go back over your records and separate everything into categories such as food, utilities, rent or mortgage, travel, clothing, recreation and books. You will find that a large percentage of your money goes to a few categories, such as food and rent, with many smaller categories such as bus tickets, movies and magazines making up the balance. Dividing your budget into a few categories makes it more manageable than a list of 300 different items.
Most people waste a lot of money. Make your money go further by minimizing or eliminating unnecessary expenditures. Credit card debts that are carried from month to month may cost a lot in interest. Insurance policies carried with different companies may cost less if consolidated with a single company. Cable and magazine subscriptions that are rarely watched or read may be canceled.
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