Things to Know About Budgeting

A bargain ain't a bargain unless it's something you need. ~Sidney Carroll, A Big Hand for the Little Lady


Yes, I am so hooked up with this budgeting thing. Well for me its "evil" :) but something we have to live with and true to form, I have been trying to master the art of budgeting. See also my post on budget/savings calculators.

1. Budgets are a necessary evil.

They're the only practical way to get a grip on your spending -- and to make sure your money is being used the way you want it to be used.

2. Creating a budget generally requires three steps.

- Identify how you're spending money now

- Evaluate your current spending and set goals that take into account your long-term financial objectives

- Track your spending to make sure it stays within those guidelines.

3. Use software to save grief.

If you use a personal-finance program such as Quicken or Microsoft Money, the built-in budget-making tools can create your budget for you.

4. Don't drive yourself nuts.

One drawback of monitoring your spending by computer is that it encourages overzealous attention to detail. Once you determine which categories of spending can and should be cut (or expanded), concentrate on those categories and worry less about other aspects of your spending.

5. Watch out for cash leakage.

If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.

6. Spending beyond your limits is dangerous.

7. Beware of luxuries dressed up as necessities.

If your income doesn't cover your costs, then some of your spending is probably for luxuries -- even if you've been considering them to be filling a real need.

8. Tithe yourself.

Aim to spend no more than 90 percent of your income. That way, you'll have the other 10 percent left to save for your big-picture items.

9. Don't count on windfalls.

When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as year-end bonuses, tax refunds, or investment gains.

10. Beware of spending creep.

As your annual income climbs from raises, promotions, and smart investing, don't start spending for luxuries until you're sure that you're staying ahead of inflation. It's better to use those income increases as an excuse to save more.

Thrift means that you should always have the best you can possibly afford, when the thing has any reference to your physical and mental health, to your growth in efficiency and power. ~Orison Swett Marden