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Setting up a Budget

How to set up a Budget

If you can't afford to pay your bills on time, you have a problem.  One solution is to downgrade your lifestyle by making big changes. If you move into a cheaper home or sell your car, you can save a lot of money. The problem is when do you know if that is absolutely necessary? How can you be sure that selling your house is the right choice and that there aren't other simpler options that will relieve the financial burden?

If you need to cut back on your spending and don't know how, organise your finances and set up a budget.  Even if you aren't having money troubles, setting up a budget will help you immensely. Take the extra money you save and invest it so that you have more to play with in the future.

To begin setting up your budget, add up your expenses. Spend 1 month monitoring your spending. Carry around a small notebook to record all your spending habits including the exact amounts you spend on each item. You should also use your bank statement and credit card statements to help you see how much you are spending. Add it all up to get your total expenses.

Next, add up your income. Don't use your gross pay, just what you take home. Include all income that you bring home: paychecks, dividend income, interest income, investment income, etc. Most people just have their regular pay, but you may have other income as well. Now you have your total income for the month.

Subtract your total expenses from your total income. Do you get a negative number? If so, you are spending too much money and need to take action. The larger the negative number, the more you are going into debt. If this is the case, visit our debt help section now!

If you broke even, you are getting by but you aren't saving anything. You should always have extra money to save that can be used for an emergency. See our make money online and offline sections to increase how much your bring in. Furthermore, you need to go through the save money section thoroughly.

If you get a positive number, well done! This means you do have extra income to save and potentially grow. Even though you are saving money, chances are you could still save more.

In order to save more money, you can spend less or earn more, but typically, spending less is easier. Determine the exact amount of money you need to save and then subtract it from your income to get the amount you are allowed to spend. Go through your expenses and set up categories. For example, food, entertainment, snacks, clothes, mortgage, cable, electricity, etc. are all good categories. Set limits for each of these categories. Make sure that the limits for each category add up to your maximum spending amount.

Finally, follow your new plan. As the days go buy, spend no more than the limits you have set for each category. If it works on paper, it should work in real life if you follow your budget. You may need to adjust your budget slightly for the first few months, but once you get it settled and working efficiently, you will avoid further debt, save money, decrease stress in your life, and feel more financially stable.

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