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Building a Budget
September 8, 2020
Someone once described a personal budget as a “mathematical confirmation of your suspicions." Books have been written and national speaking tours conducted on the subject (with the accompanying book and even a few television shows). While that may provide a helpful level of detail for those looking to fine-tune their financial situations there are a few basic concepts we all need to keep in mind. The following four concepts are a good place to start:
1 - Top Line – Middle Line(s) – Bottom Line
Top Line – a monthly budget starts with your total after tax income for the month.
Middle Line(s) – a monthly budget includes all expenses that are due in the month and include a set-aside for any amounts paid quarterly, semi-annually, or annually. Those expenses can sneak up on you if you do not allow for them.
Bottom Line – your monthly budget bottom line should be $0 or greater. If greater – save the money. If $0 – good job. If negative, determine what items are causing the issue and address them. Too many negative months will result in lower savings balances or higher debt.
2 - Pay Yourself First: Set aside an amount of money each month that you are saving. These should be emergency funds – dollars you do not intend to touch unless you absolutely must.
3 - Avoid Debt: Debt payments can really sink a budget. Make sure you understand how the payment fits in your monthly budget and understand fully the impact of the interest costs on the total cost of that “must-have” purchase.
4 - Budget for FUN: If you know you enjoy heading out to eat on Friday or your online shopping requires you to spend a few more dollars, remember to include it in your budget. You feel better acknowledging it and you may also see other areas you can cut back to make it work in the budget.
Budgeting improves with practice. Sitting down and identifying income and expenses is the first step. Once you get started you may see an immediate benefit, or it may take a few months to see results. Hopefully, you experience success in the form of reduced financial stress and increased savings. Find online tools, e-courses, and other resources at Centier To You.