In a struggling job market, having a good handle on your income and expenditures is paramount. The availability of well paying jobs is dwindling and the probability of decent pay raises is falling as well. In order to remain financially stable, you need to look inwards eliminate your budgetary inefficiencies. The cost of living is rising and the average pay rate is falling, but with a good budget you can continue to live the way you have grown accustomed to.
It’s important to remember that it doesn’t matter how much you make if you don’t have control over how you spend it. This is why you will often read about the rich and famous filing for bankruptcy. Improper monitoring, bad investments and negligence can be detrimental to any budget. Fortunately there are a few things you can do to create a financial plan that you can adhere to.
Identify Net Income
Before you can even start to think about what you can buy every month, determine how much money is flowing into your accounts. Take your monthly pay and subtract any mandatory deductions like taxes or garnishments. You shouldn’t deduct health care or retirement savings because these are numbers that can change. After you have identified your net pay from your day job, tally up any other sources of income that you might have. You could make a few extra bucks on the side selling stocks, babysitting, or working a weekend job. All of these elements will have a major impact on your budget.
Determine Fixed Costs
Fixed costs don’t change on a monthly basis. They are the foundation of your budget because they rarely ever change. They are things like your mortgage, car payment, or property tax. There isn’t much wiggle room with fixed costs. Once you have set them up, you have to deal with them until you eliminate the cost from your life. Indentifying these costs is the first step towards having a better handle on your expendable income.
Analyze Variable Costs
Unlike fixed costs, variable costs can fluctuate from month to month. You can actively work towards reducing these costs if necessary. This can be your cable, phone, electric, or gas bill. By identifying these monthly expenditures, you will be able to hone in on the ones that you may be able to reduce. It might be as easy as switching to a cheaper cable plan or turning the lights off more diligently.
Planning Ahead
Planning for the future is an essential part of every budget. You should incorporate a little room for savings. Setting money aside for retirement and a rainy day should be done separately. You should work towards a goal of having six months of salary in a savings account, even more in a poor economy. Saving for retirement is just as important. Social security isn’t as reliable as it used to be so it’s up to you to take your retirement into your own hands. Even if you can only stuff away a few meager dollars per month, it will go a long way after compounded interest is taken into account.
Have Some Fun
After everything is finalized, and you have taken care of your monthly bills and savings, the rest should be deemed expendable. This money can be used for anything your heart desires. While fun money is meant for fun, it’s important not to lose sight of how much money you have set aside for fun. Going over in this category can lead to debt.
Setting up a budget is easy, abiding by it is the hard part. The first few months of living with a budget is hardest, but with time and diligence you can learn to live on the strictest one. Some might think it easier to make more money with a second job. When you take taxes into account, a penny saved is truly worth two pennies earned.