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The best way to acquire financial security is to have a sound budget. With a realistic budget, you can have more money to plan that vacation or buy that awesome big screen TV with the surround sound system. In order to indulge in these luxuries without utterly destroying your bank account, you need a budget.
Not to worry, though! It's not as bad as it sounds. It's actually quite simple.
HOW MUCH DO I MAKE?
The backbone of any budget is based on how much you make. Even if your income is lower than you'd like, you can still budget successfully, but it's important to know what you have to work with in order to create a balanced budget.
When budgeting, it's critical that you use your net income as opposed to the gross, that is, the amount after all deductions and taxes. Doing so will give you a more accurate representation about what you have today, factoring in what the government takes as deductions.
For all practical purposes, what is being deducted from your paycheck is money that isn't yet available to spend. Then when you file your tax return, treat the refund like a bonus.
If you have a variable paycheck, using a close estimate should suffice in most situations. A realistic estimate can be gathered by totaling your income from the past 3-6 months, and then divide by the income you received in that time.
WHAT ARE MY FIXED EXPENSES?
There's no way around it; we all have bills to pay. Some bills vary from month to month, but there are others that are constant. Many loans are structured so you pay the same amount every month. For example, your car or home payments are fixed expenses. Rent and cable bills are also usually the same amount every month.
Some examples of common fixed expenses are:
• Mortgage or rent
• Car payments
• Car insurance
• Property taxes
• Home insurance
• Loans and lines of credit
Take some time to make a list of your fixed expenses and total the result.
WHAT ARE MY VARIABLE EXPENSES?
This is where making a budget gets a little bit tricky. Not every bill is the same amount every month. You don't always spend the same amount at the grocery store or on gasoline. It's easy with the fixed expenses, but here there is room for error. Use an average amount of each variable expense for your budget.
The good thing about variable expenses is that you can change them. As you'll see, reducing these variable charges is a great way to keep more of your hard earned cash.
Some examples of common variable expenses are:
• Car maintenance
Take a few minutes to list your variable expenses and total the result. A good strategy is to go through your recent credit and debit card purchases to see where your money is going.