Creating a Personal Budget

While most of us will utilize plans for vacations, plans for the holidays, or plan out our weekly to-do lists, often planning how we spend our money is something we never get around to doing. Simply put, a budget is a plan, not necessarily an elaborate plan, for where to put our money. How much to spend, how much to save, what are the items needed, what are the items wanted and differentiating between the two.

Constantly recording your spending and purchases is a good way to begin regaining control over your personal finances. In the beginning, you only want to record your purchases, don't change your spending habits until you know what they are. As you look over your spending take the time to determine what you want and what you really need. When you see where the money is slowly bleeding out, you are more likely to want to patch up the hole it is coming from. You should gradually adjust your budget as you get better at spending less. Because you want this to be a permanent change you need to use baby steps. Don't tighten your belt too quickly and make sure you still spend money on a couple of fun things. This will keep you from rebelling against your new budget. Eventually staying on budget and constantly evaluating your finances will become second nature to you.

To begin you will need to figure out what things are not necessary to buy and develop a baseline spending pattern to follow for the second and third month.

1. After tracking monthly unnecessary expenditures, average it down to weekly expenditures. Withdraw cash, but make sure it is less than the amount you spent last month. This cash is for any nonessential purchases for the month. You may run out of cash before the week ends, but there is only a few days left until the new week begins.

2. You probably eat out more often than you realize. Reducing the number of days per week you dine out is a good starting point. This number is up to you, but you should begin with a figure you will be most comfortable with and follow it for a month.

3. You can save on clothing by purchasing one piece at a time instead of a complete outfit. Make it a habit to check out clearance items first, then discounted items before visiting the rest of the store.

4. Spend an afternoon comparing the prices for telephone, cable, satellite, and garbage pickup services, in addition to the rates and terms for credit cards to find fees that are more competitive as well as switching bonuses.

5. Avoid getting cash from ATM machines other than those of your own bank to save yourself additional fees.

6. Always make a list prior to going shopping, and make sure you adhere to it. If you do remember something that wasn't on the list, remind yourself that you can always return to the store. Most likely you won't return for that item, which will save you even more money in the long run. Do whatever it takes to avoid impulse purchases in order to succeed in your financial goals.

Overall, remember reduce stress by starting with a snap shot of where you are spending money now, make a budget in increments, allow yourself a few luxuries as you go, don't be too hard on yourself. You want the budget to work over the long term. Create successes for yourself in the beginning, reevaluate over a period of several months, and a new lifestyle will emerge where you will be more in control of your spending and have less wasteful spending that will generate more cash flow for you as well.

by Phil Rogers