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How to Create a Budget for Financial Stability

A budget is a savings plan, but a budget is also a spending plan. Creating a budget gives you a monitoring system and an assurance that you have the financial means to pay all your expenses without incurring debt, overdraft, bounced checks, or interest charges.

An effective budget includes information about how much you earn and spend on average each month. You can create an expense list that includes your average monthly expenses for things like food, transportation costs, home payments, utility bills, etc., to see what needs to be cut from the list to save money.

It’s important when creating a budget to include money that might be spent on unforeseen events such as car repairs, emergency medical care, etc.

Assessing Your Income And Expenses

Look at the average amount of money you earn each month. Include income from your paycheck and any other sources of income like alimony, child support, pensions, etc.

Next, look at the average amount you spend each month on necessary expenses such as rent or mortgage payments, car payments, utilities (gas & electric), groceries/food bills, etc. Leave out any luxuries like dining out, cable TV/Internet service, and vacations for now.

Just focus on the necessities for now that must be paid every month to keep you above water; everything else can come later when you’re in a good position.

Setting Goals

Now, you need to set goals in your budget that you want to reach.

It’s important to set a realistic and attainable goal. For example, if your goal is to save $200 per month, wait to set it as $200 because that won’t work. Figure out how much you can save and what your monthly expenses are. If it’s not realistic, there is no point in saving at all.

Another example would be saving for a down payment on a house or paying off debt faster to build equity in your house faster. You may need to look into specialist financings, like getting a refinancing current loan with a lower interest rate or getting a second additional loan for home improvements to pay for the equity in your house.

Your goals should be realistic and attainable but not something you cannot possibly reach in the next month or two. If you can’t meet them, make new ones that are attainable but still have some stretch goals in mind.

Allocating Your Income

How much of your income should go towards necessities? How much toward luxuries? Try to keep more of your income available for luxuries. Remember that something is always better than nothing.

You may have to consider all your expenses and determine which ones you can reduce or eliminate. You may need to earn more money if you still cannot meet your goals.

If you can’t earn more money, cut expenses, reduce luxuries, try to get better deals on what you need, and/or look for free sources of income.

All of this should be a process that starts with defining your goals and then taking action toward achieving them. Once you’ve committed to saving it first, you’ll know how much money that is.

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