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How to Make a Budget and Stick to It

Chapter 1: How to Make a Budget and Stick to It
Chapter 2: Creating Personal Budget Goals
Chapter 3: Assessing Your Current Financial Situation
Chapter 4: Identifying Budget Focus Areas
Chapter 5: Staying Committed to Your Budget
Chapter 6: Budget Software

Budgeting is a term that everyone tends to veer clear off until they find themselves in financial trouble. There are many factors that can bring you to your knees financially – huge debts, mounting credit card bills, unmanageable expenses, emergencies that have wiped out all of your savings, recessive economy etc.

A budget is not a miracle cure for any of these problems, but it will let you keep your head above the waters and stay in control to some degree.

A budget helps you draw the line and stay within it as far as your money is concerned. It helps you understand your spending habits so that you can spot weaknesses and rectify them quickly and effectively. A budget is a map that guides you to your financial goals.

Budgeting Misconceptions

Misconception 1: A budget restricts spending and limits financial freedom.

Nothing is further from the truth. A budget can be thought of as a stairway or ladder to financial freedom, because it enables you to slowly but consistently make your way towards a more secure financial future.

Misconception 2: Budgeting is only for the over cautious or those close to their retirement.

Some people think that budgeting can be conveniently ignored until you are nearing retirement or are retired. The truth is, unless you have been following an effective budget all through your life, you will not have anything to budget by the time your retirement comes close. Remember, post retirement is a time for zero income from salary and mounting bills, especially from healthcare.

Misconception 3: As long as my income covers all my expenses, I don’t need a budget.

This is fine as long as you can guarantee a permanent income all through your life and zero emergencies. What happens when you fall sick and require expensive treatment, what if you want to buy a house, how do you pay for your child’s education?

There are many similar expenses that will arise through the course of your life that cannot be met by current income alone. An effective budget is your master plan for such contingencies.

Why Budgeting is Important

Budgeting is not just important for those with extravagant spending habits or those facing bankruptcy. There are many ways in which a budget can help build a more financially secure future for everyone.

We all spend unnecessarily at times and undergo periods where our finances are tight but some are given to such expenses on a regular basis. A budget helps curtail extravagance or unnecessary expenditure that eats into the income or savings and channelizes these funds into important expenditure.

Your budget keeps you in the know about where your money is going. It helps you assess your spending to determine if the expenses are really worthwhile. The budget evaluates the contribution of each expense to your long term financial objectives.

How to Make Sure You Have an Effective Budget

An effective budget is one that clearly assesses how much money comes in, how much is being used and where, and how much you are actually saving. By presenting a clear picture of your finances, the budget helps you formulate strategies and plans to address issues.

By creating a structured and systematic plan for financial security, your budget also helps you stay in charge when circumstances beyond your control, such as recession, affect your finances.

Financial experts advise budgeting as a first step to debt reduction. The budgeting habit is not a temporary solution but a lifelong answer to over spending or losing control of finances. Though tedious and difficult to begin with, budgeting is a task well worth undertaking because of the many advantages it offers.

Next: Creating Personal Budget Goals

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