Introduction to Budgeting, Part 1: Why Budget?
When it comes down to it, an effective household budget is an essential part of a healthy financial outlook. Without a solid budget strategy in place, you don’t know where your money is going or how it’s really being spent. You may struggle to manage debt effectively and have problems maintaining a consistent saving strategy. An accurate household budget allows you to truly be in control of your financial future.
At Consolidated Credit, we’re experts at helping consumers eliminate debt while developing good personal finance habits. We can show you how to create a budget that really works to help support your financial stability. If you’re struggling to stay afloat, give us a call today at 1-800-320-9929 to speak with a certified credit counselor or take the first step online by completing a request for a Free Debt Analysis.
What an Effective Budget Can Do for You
Although it takes some time and dedication to develop and maintain an accurate household budget, it can be a significant force in helping you achieve your financial goals. What’s more, an effective budget strategy and the right budgeting tools help you minimize the work budgeting takes, so you can better understand where your money goes without added hassle or wasted time.
An effective budget allows you to:
- Maintain balance between your debt load, personal savings rate and income level.
- See where your money is really going each month so you can make adjustments to your spending habits as needed.
- Plan ahead for big events, such as vacations and holidays to reduce your dependence on credit during these expensive times of the year.
- Be more strategic in managing debt and developed effective debt reduction strategies.
- Develop a consistent saving strategy that helps you reach your financial goals.
- Create better strategies that help you prepare for any major asset purchase, such as a new mortgage or new auto loan.
At a basic level, your budget should provide an accurate picture of your income versus debt, monthly expenses and savings. In any given month when you have normal expenditures, your income is divided between debt payments and other obligations, necessary expenses such as food and gas, discretionary expenses for things like entertainment, savings and free cash flow.
Free cash flow is the amount of money you have left once everything is paid. This is money you can use for extra expenses that don’t fall in your budget, such as birthday presents or travel reservations for your next vacation. By covering these “one-out” expenses in cash, you can avoid depending on credit card and driving up your debt load.
It’s also important as you create your budget to remember that you are trying to strike a balance between various parts of your financial picture. The following chart shows how your budget should be divided to maintain financial stability:
Not every budget is the same, but these values serve as a general guideline for how money gets spent effectively in a normal American household. You can use these values and compare them to your own spending to determine how your budget should be divided. The key is to develop a balanced budget that you can maintain in the long-term.
Getting to Work on Creating Your Budget
To begin creating your budget, you need to establish a general picture for how you spend money each month. The best way to do this is to evaluate your spending over the past three months. By doing this, you can determine the average spending in each area of your budget and set budget goals for how much you should spend on a given area each month. Once this system is in place, the majority of your budgeting work will be dedicated to analyzing your spending to make sure you’re on track with the goals you set.
Take Control of Your Financial Future
If you’re ready to get started, you can continue reading how to build an effective budget with Part 2: Budget Strategies. If your current financial situation is preventing you from creating an effective budget because you have too much debt to manage successfully, we can help. Call Consolidated Credit today at 1-800-320-9929 to speak with a certified credit counselor about developing a plan to get you back on the right financial path. You can also get started online with a request for a Free Debt Analysis.