Perhaps you thought you knew how much you spent on mega lattes, till you saw the numbers in front of you. For most individuals there is $65-$85 a month in savings or more than $750 a year. Leave out Starbucks and eating out every day.
Take a look at non-monthly bills, like car insurance, vehicle registration… decide between needs and wants.
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In today’s domain there are very few individuals who take the time to produce a personal budget. Some individuals don’t see the value in doing so; others merely have no desire to confine their spending habits.
With this in mind, it should surprise no one that the number of personal bankruptcies has achieved an all time high. Individuals have achieved a point in our society where they purchase on impulse with no thoughts to the outcomes.
In order to reverse this trend individuals need to become more responsible with their forms of spending. Among the best tools to help a person achieve this conduct is the personal budget.
A personal budget is a financial plan which sets bounds on the sum of money that will be spent on each category of expenses in a given month. A beneficial budget will take into consideration such elements as: the amount of income being obtained, owed debt to be retired, retirement savings, and an emergency fund.
A benefit of a budget depicts an accurate idea of how much a person can actually afford to pay for assorted consumer items. Whether it’s a home, a car, or a new TV set, an individual will be able to ascertain whether or not a particular purchase will fit within their monetary
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constraints. This acts as a precaution against getting in over your head financially.
It’s crucial to realize that merely creating a budget isn’t enough. This in and of itself will do an individual absolutely no good if he doesn’t discipline himself to stick to it.
Keep Track and Set Limits
Occasionally this will very hard, especially if an individual has founded the habit of freely spending without an afterthought. However, the long-run advantages of financial freedom, debt free living, and a comfortable retirement far outbalance any potential difficulty.
List as many of these bills as you are able to identify over a 12-month period.
Now, employ the “one-twelfth” rule, where you put aside funds for these expenses monthly, so as to limit their impact when payments come due.
Next, center on where you are able to spend less money without depriving yourself.
- What uneconomical or indulgent practices can you cut down on? (Cab rides when you are able to walk, expensive lunches.)
- Do you shop for items you don’t require?
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- Are you paying too much for services like car insurance, cable or cell phone service?
- Do you have unused memberships (e.g. gym) that you’re still paying for (and may sell)?
It’s easy to distinguish between the two if you go by a textbook definition. But actually, the distinction is hard and has been getting narrower over the past few years.
Nowadays, a car has become an emotional need in spite of the existence of an efficient public transport system. The need for an auto has transformed from a status symbol to a luxury to a basic essential now. The same system of logic applies to food.
From home food to a fast food joint, nowadays buyers expect a fine dining experience and not just good food. This ambience comes at a premium and individuals just don’t mind paying for it.
The truth is, wants are inexhaustible and often the lines between needs and wants get blurred. Therefore, one needs to get into selfexamination before giving into the impulse to splurge.
Let’s presume a family of 4 spends $8,000 on food, $25,000 on shelter, $20,000 on education and $10,000 on transportation. Now calculate the difference between your outlay and earnings.