Budgeting, it isn't rocket science but for some people it may as well be. I am amazed at the number of people I come across that have no money sense. They earn really good money but just can't stay ahead of the game and are often struggling with large debt. Then there are the people I meet who don't earn as much but have great financial management skills.
So what is there secret, it is a simple formula and will work for everyone - spend less than you earn!
When people begin to budget they usually start wrong and so the budget never lasts. The first step in budgeting should be to keep a money diary for at least 4 weeks. During this time you need to write in your money diary everytime you make a purchase or pay a bill, right down to the cent.
By keeping a diary like this you will begin to create a picture of your spending habits. Everyone has heard someone say, "I just don't know where my money goes..." well now you will find out. Once you see your spending patterns you can begin to create a budget.
The next step is to seperate your spending entries into WANTS & NEEDS. A need is something that you or your family has to have in order to live, such as food, clothing, shelter, water etc..you get the picture. A want is all the other things that you spend your money on, these are more lifestyle items such as a boat, electrical appliances, holidays etc.
Once you have completed this step you will see where you can cut back on your spending. Even if you only can cut back by $5 a day that adds up to more than $1,800 a year. Paying off an extra $35 a week on a $200,000, 25 year mortgage will reduce the amount of interest paid over the term by around $12,830. As little a $20 a week invested with a return of around 6% and you will have $15,000 in 10 years.
The most important thing to do now is to start, the sooner you start the sooner you will be in front.
For more information and tips visit Understanding Money.
