Your Personal Financial Budget – The Real Purpose is to Save and Build Wealth

A personal financial budget is a money allocation plan which is part of your financial plan enabling you to outline your financial goals. Establishing a personal financial budget is not difficult and has tremendous payoffs. You can better establish and regulate your financial resources, set and achieve your financial objectives, and make advance decisions as to how you want your finances best to function for you.

The main idea in creating a personal financial budget is to put aside a certain amount of money for expected as well as unexpected costs, based on previous expenses and bills, as well as define savings amounts in its optimal state. It therefore enables you to position yourself to build wealth in the long-term. In order to create a useful personal financial budget as part personal financial planning you must do the following:

Step 1. Determine how to allocate your compensation by first identifying your spending habits. Define fixed expenses (e.g., home, auto, utilities, insurances, etc.) thoroughly for a month and write everything down and add it all up. Even if your utilities fluctuate a little you can estimate the cost after an average month. Through proper determination of your “spending patterns”, you can immediately identify solutions for creating an effective personal financial budget for your needs.

For instance, when you have a steady monthly net income (after tax take home pay) of $5,000, you should subtract all of your identified monthly expenses from that income – making a list of the regular monthly amounts. Spreadsheets are often useful for keeping track of this information. Many people often create an excel spreadsheet budget to track expenses. There can be benefits to creating multiple year personal financial budget plans.

Step 2. Next, assess other bills, like those that may occur periodically during the year. These can be estimated and then subtracted from the amount of your income. You have one of two ways of doing this. The first way is to compute the total for a year, divide the total by 12, and subtract that monthly amount by putting the money into savings to build until you need it. The second way is if you have enough surplus you can just budget the full annual, semiannual, or other bill in full or in some other payment arrangement.

Step 3. The balance that remained after fixed costs can now be budgeted across miscellaneous household expenses and savings. Budgeting for savings is often overlooked and therefore often will not get done. A short-term 2-5 year savings goal needs a minimum 2-year personal financial budget plan so you can see where you are going. A short-term impulse buying view is often what prevents people from accumulating savings and building wealth.

Step 4. To best determine how to ensure you contribute to savings, you can do this one of two ways. You could use dollar amounts for a group call miscellaneous like gas, clothing, entertainment and groceries. Some people promote using proportions or percentages. But think about it, if your income increases, does that mean your miscellaneous expenses should or should your savings increase instead? So, using dollar amounts instead of percentages could be advantageous to your savings goal.

Step 5. Ideally you have a minimum of 3 cash or banking accounts. These expenses should be allocated across 2 checking accounts – the first for paying bills and for transferring money to at least a second checking account and one savings account ( if you do not have direct deposit across all of these accounts). The second checking account would be for your household, miscellaneous, spending money and not the recurring bills. Then a third short-term savings/emergency account (later adding longer-term savings accounts of course) but these are beginning steps that many people never put into practice.

These are ways to establish a basic financial plan and to prevent usage of non-allocated money for miscellaneous or impulse expenses. These are beginning steps that many people never put into practice that are beneficial and can be built upon, for long-term financial planning.

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Personal Financial Freedom – Sticking To Your Personal Financial Budget

To achieve financial freedom we must live within our means and be financially responsible. To be financially responsible we must track our income and expenses through our personal financial budget. The first step in personal financial freedom – living within your means – is done by tracking income and spending less than we bring in.

Keeping track of our income and expenses and preparing a personal financial budget is the easy part. The difficulty comes in sticking to our personal financial budget and continuing to track our finances often. For most people this is very difficult to do once they get caught up in the rush of life. In order to be successful we need to set up a planned time to keep our personal financial budget and income/expense tracking up to date.

Now, finally onto what this article is about. Today I want to give you readers some real life personal financial advising tips that will help you to stick to your personal financial budget and live within your means.

1) Be Organized- To be successful and succeed in our quest for financial freedom we all must be organized. Without being organized there is no way we can possibly track our income and expenses and stick to our personal financial budget.

2) Take control of your spending- US Citizens savings rate has dropped from 11% in the 1980′s to a negative savings rate today. This is clearly not the way to live within your means and achieve financial freedom. You need to take control of your spending and be sure to only spend money that you have. This means absolutely no credit card debit. Using a credit card is perfectly fine but only to the extent that you can pay off the full balance every month. As of today the average American has roughly $7500 in annual consumer debit. That averages out to over $600 per month. You must give up on the debit and begin to stick to your personal financial budget or you will not succeed in achieving financial freedom.

4) Setting Goals- Setting personal financial goals for your future is very important. If you can set future goals then it can help you stay on track today.

5) Cut any Unnecessary Expenses- To achieve personal financial freedom we need to live frugally today. Living frugally today will payoff and you will be much for financially free in the future. We all have a significant number of unnecessary expense that we can cut from our spending. All it takes is small things like packing a lunch for work instead of eating out.

Here are some more specific everyday tips for savings money:

1) Buy Store Brands When Possible

2) Don’t Eat Out So Often

3) Never Buy a Brand New Car

4) Use Coupons and Stock Up on Sale Items

I think you can see from this article that small savings is very important in achieving financial freedom and sticking to your Personal Financial Budget.

Personal financial freedom is a great thing to experience but it definitely takes sacrifice now so that you can have that financial freedom in the future.

If you are wondering what a personal financial budget is or what living within your means means then you should check out all the other articles ezines has to offer. These will get you up to speed on how to achieve personal financial freedom and then this article will make more sense to you.

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