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The importance of a budget

 

Saving money and getting your finances on track is not always an easy thing to accomplish. One of the most helpful things to do to accomplish these goals is to create a budget. There are many different reasons why someone would want to create a budget including retiring early, paying off debt, stop living paycheck to paycheck, etc. Once you have decided to create a budget, a good place to start is by going over your spending during the past few months. By doing this it will help you assess how you are spending your money, and identify what areas of spending could be cut or reduced.

Separate your expenses into categories representing essential living expenses and discretionary expenses. The essential expenses include such items as rent, utilities, car payments, gas, insurance, and all other items that are necessary living expenses. The discretionary expenses include all other expenses that are not necessarily needed. To determine a limit for your discretionary expenses, take your monthly income, subtract all of your essential expenses, and the amount remaining is what would be available for the discretionary expenses.

To make your budget more effective allocate a portion of your income to savings. As a guideline, a good amount to save is between 10-20 percent of your monthly income. This will help for any future expenses, whether foreseen or unforeseen. It is important to set aside funds in case of an emergency. For example, you should have three to six months of living expenses set aside in an emergency fund.

Some things to consider that you may find helpful when you are trying to save money include cooking at home instead of eating out at restaurants, making coffee at home instead of the daily $5 latte, not waiting until your gas tank is running on empty so you have a choice at what gas station to stop at instead of the closest one to you, reducing the time you keep the air conditioner/heat on in your house, etc. There are many ways to cut your spending, even a small amount of savings here and there can add up.

It is important to create a budget that is both doable and realistic. If you are someone that has a discretionary expense that you are not willing to give up then make sure to factor it into your budget. If you don’t factor these expenses in your budget it will be impossible to stick to it, and will lead to overspending.

 

 





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100 W. Liberty St., Suite 1100
Reno, NV 89501

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