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Tuesday, July 1, 2008

Creating a Budget

From The Hoss's Mouth

The Hoss says: Creating a budget is a necessary tool which will enable you to meet your financial goals. In order to create a successful budget you must do the following:

Hoss Cents Free Financial Money Magazine Success Tip

  • Categorize how and where your money is currently being spent. Collect all your financial statements for the past six months. This includes bank statements, mortgage payments, recent utility bills, gas bills, food bills, insurance bills, credit card bills and all cash receipts. In addition, total all your sources of income. In short, any information regarding income or expenses that will help in creating a budget.
  • Evaluate your income and spending to see if your current lifestyle is meeting the priorities you and your family have established to achieve financial success (see establish financial priorities).
  • Compare your income versus expenses. I suspect many of you have expenses that exceed your income. Have each family member identify areas where they can reduce their expenses and increase their income. You will note you have certain fixed monthly expenses, such as your rent or mortgage, utilities and insurance payments. It is unlikely that you will be able to significantly reduce these expenses, so concentrate on your family's variable expenses. Expenses such as clothing, transportation, groceries, and entertainment. Cut these variable expenses and produce a budget that adjusts your spending habits so that you and your family will be able to reach your financial goals. The goals you wrote down as per the Hoss's instructions in the previous post of this blog. The Hoss realizes this is not an easy task. His next post will provide you with suggestions that will enable you to identify areas where costs can be reduced and help you with creating a budget.
  • Each and every month, review your budget and make sure you are on track with your goals. Identify where you did well and what areas need to be adjusted to meet your target. This is extremely important if you are to achieve the targets set by you and your family. Be honest with yourself; cheating results in failure and you will fail in creating a budget.

The Hoss has prepared a budget pie chart which identifies expense categories common to all families, and suggests what percent of your take-home pay should be allocated to each area. The Hoss has also included some examples of the types of expenses in each budget category. The list of expenses below is by no means complete, but is provided as a guide to help you get started. Each and every family will have to construct a budget according to their needs.

Housing: mortgage, utilities, cable, insurance, taxes

Living Expenses: entertainment, miscellaneous items

Savings: emergency fund, investments, retirement

Transportation: gas, insurance, parking, bus

Debt: loans, credit cards, etc.

Food: groceries, vitamins, etc. Note from Mrs. Hoss: Booze is not a food group

Hoss Cents Free Financial Money Magazine Success Tip

The Hoss suggests you seriously consider using an accounting software program. This will enable you to simplify the process of recording your financial transactions and creating a budget. Most of these programs enable you to assign each transaction a specific category, and to compile a report detailing these transactions. This enables you to track how much you have spent on such items as fuel, insurance, car repairs, groceries, clothing, mortgage, etc. Your sources of income are also tracked. In other words, it simplifies the evaluation process outlined above. If you have a Microsoft PC, The Hoss suggests utilizing Microsoft Works, as it usually comes free with the purchase of the computer. It contains a monthly budget template which will help you set up your budget.

The Hoss says: It really is that easy folks. Track your income versus expenses, and then adjust to meet your family's financial goals and you will be successful in creating a budget.

Stay on track,
The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Money Saving Tips

Previous Post:
Setting Financial Priorities

1 comment:

  1. Nice page

    I like to think of a budget as something that

    'plans where your money goes rather than wondering where it went'


    Banjo Smyth


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