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Tips On Budgeting-2 completes the tips to control your budget, including a Family Budget Worksheet and other tools in our Financial Management Planning Help pages, with debt, mortgage, investment and job help.

Tips On Budgeting-2

Continued From Tips On Budgeting

Budgeting Tip 12:  Needs-vs-Wants:  One of the most powerful tools in budgeting is the ability to tell the difference between needs and wants.  We've designed the Worksheet to show you things you are required to pay.  Don't confuse this with needs.  A significant amount of consumer credit debt, and possibly some of house payment, maintenance, even food can be wants...not needs.  You must assess whether an item is a 'need or want' before you purchase it.  We'll cover what you do with 'wants' a little later.  First, let's look at some examples of 'needs'.  The 'need' part of a house is minimum family/dining room, parent bedroom, 1 bath, and, if required, 1 bedroom for boys and 1 for girls.  The 'need' part of a car is what is minimally required for your regular transportation needs (some would argue that no car is a 'need').  The 'need' part of your groceries is what is minimally required to sustain you and allow your children to grow.  Even though I listed them as 'not required' expenses, cell phone and internet access are 'needs' only if they are required for your business and only if they are not provided by your employer.  Cell phones are never 'needs' for children of any age.  For all my spend-happy friends; cable TV, microwave, patio set, jewelry, second purse, fishing pole, Lexus, golf clubs, steak, and Christmas gifts are never 'needs'.  If you have trouble assessing the difference between needs and wants, visit Compulsive Shopping Addiction.  Your spending problem may be more than a passing season.

Budgeting Tip 13:  Getting what you want:  If you're saving for your future, you have 'rainy day' cash and your monthly income exceeds your expenses, I have good can have all your wants.  If not, try this:  We keep a "Wannas" list for everything we want that we can't pay cash for.  We list everything we want, along with an estimate of its price.  Then, we put the list in order of most important to least important.  Next, we put a regular amount in monthly savings.  When our savings (over the 'rainy day' balance) exceeds the value of the first item, we take the money out and buy the item with cash.  By saving and paying cash instead of using credit cards, you save 20% on the purchase of every item (17% credit card interest and 3% savings interest).  You get an added benefit, I call the 'cooling off period.'  By the time you save enough money for the item, you often don't feel you want it any more.  I'll prove this to you.  You know how important the things you want to buy right now are.  You can name them, the color, the feel, the price.  I'll bet you even know how some of your friends will react when you show them you own it.  If you think these things will be that important to you in a year, once you've saved for them, you'll have no problem doing this:  Take your credit card statements out and total the balances.  Now, list the names and prices of the items you bought to make up those balances.  Most people are paying hundreds of dollars each month for things they no longer even know they have.  If I just described you, take a look at Debt Free Living Help for instructions on how to use this budget system to eliminate your debt.

Budgeting Tip 14:  There is great power in budgeting future income...the increases in net income you receive due to promotion, etc.  I remember I used to figure out how much my pay was going to increase, then accept a new credit card so I could charge enough to make the minimum payment increase match the increase in my net pay.  This is NOT what I mean by budgeting future income.  Since your increases in pay are not spent, yet, there is no better time than now to budget for them.  Simply, put in writing a promise to yourself what percentage of future increases will go where.  For example:  20 % to donations, 20 % to savings, 40 % to pay down debt, 10 % to recreation, 10% to investment.  Until you're debt-free, I'd suggest a large amount to pay down debt. 

Budgeting Tip 15:  You need more than one bank account.  If everything stays in your checking account, it won't stay long.  You need to stash money in accounts you don't use for regular expenses.  In order for this budget system to work, in addition to your checking account, you need a separate account for Impound, Savings, Large Purchase Savings, and Investment.  Most banks or credit unions can split these off of your basic account and allow for transferring between them (they may have different names, like Christmas Club, Money market, etc.).  Have your pay go to your checking account.  Then, every month, transfer the budgeted amounts for savings, investment and impound total, etc. to their respective accounts.  Sometimes you can tell them how much to automatically transfer and you don't have to worry about it.  When the Impound items are due (Christmas, for instance), transfer the total amount for that item out of Impound and back into checking to pay for the item.  When it's time to buy that car, transfer the money from Large Purchase Savings to your checking account.  Imagine buying a new car with a check!  You will get there if you follow your budget.

Tips On Budgeting Conclusion: It doesn't matter where you are in your financial planning, if you truly have financial planning, you'll want a budget that you follow.  If you're new to this it may take a few stabs at it to get it right.  Trying and failing are far better than failing to try.  I needed help from God to keep on our budget and break the debt cycle.  If you'd like help from God, click on God help me.

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