Sunday, April 6, 2008

The Basics of Budgeting is the Beginning of Financial Independence

On the road to financial independence it's a good idea to establish a budget.

There are a lot of good reasons for having a personal budget. First of all a budget is a plan which helps you develop sensible spending habits. A budget is also an accounting tool which keeps us from going overboard with our spending.

When you put yourself on a budget it helps you account for any financial difficulties you may have incurred. A budget allows you to track your expenses and see where your money is going. Now you are able to make some spending cuts in areas where to much of your money is going. Maybe too much money is going towards entertainment or clothing, or car repairs.

A budget is a mechanism for not only getting you out of financial trouble but it can keep you from getting into trouble as well.

Budgets help you achieve financial goals. If you are trying to save $10,000 for a new house, or trying to contribute money to a retirement account it provides a mechanism which allows you to do this.

How does the process work?

First ask for Divine Guidance as you construct a budget.

Next of all you need to determine how much money you have coming in? You don't want to count anything like income from bonuses or incentives, because those are not reliable and in most cases are temporary and if they are permanent you just never know from month to month how much it is going to be. So just count your primary income. You can however count interest income and investment income.

Next see what you will set aside for charitable contributions like tithing. Ten percent is usually the standard amount.

Determine your tax liabilities for FICA, federal and state.

The next step is to calculate how much you will save. Somewhere between 5% and 7% is good, and more if possible.

The following step is to calculate your disposable income. Take your gross income and subtract the taxes and contributions and this will determine the income you have to spend.

The last step is to arrange your budget based on the different spending categories
such as housing -Groceries - car expenses - Insurance - all Debts -
Entertainment -Clothing - Medical expenses -education etc.

At this point you add up all your expenses and some will be your best guest because some are variable and can fluctuate.

To Your Great Success

Mel Richardson

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