Building Solid Financial Habits – Budgeting 101

My Journey out of Debt

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Building Solid Financial Habits – Budgeting 101

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Building Solid Financial Habits – Budgeting 101 Let's take a deeper look at the nuances of budgeting. Contrary to popular belief, there is more art than science to budgeting. The first order of business is to gain an understanding of what items contribute to a sound budget and what items need to be excluded.

The primary items that must be included in all personal budgets are:

  • Income
  • Expenses

Expenses can best be described as the following: rent/mortgage, auto payments, and telephone, utilities, cable television, and credit card payments.

If we are targeting a home budget, water, landscaping, and property tax have to be included as well. Social activities are the last items to be considered in the construction of a budget. Dry cleaning may not be a mandatory expense, but is sometimes necessary when you're required to dress professionally for work. Items that would not necessarily meet the budget spreadsheet are typically social and non-mandatory entertainment items like movies, concerts, and amusement park expenses.

Travel vacations are an important item that one may choose to budget for, and should be included whenever possible. Like many working Americans, vacation travel is required to help one maintain sanity in an ever-changing marketplace and that is my sole reason for budgeting travel and vacation expenses. The trick to vacation expenses is maintaining only one solid vacation plan annually. This will give you something to work toward during the year and give you the solace in knowing you are rewarding yourself and your family for a job well done during the previous year.

This may come as a shock, but the purchase of electronic wireless products is not a "must-have" item to be included in a person's budget. However, anyone can decide what is prudent and what is surely outlandish.

Regarding income, I include my professional salary, my high school and college basketball game officiating checks (as they are received), and incentive/performance pay when it actually hits my checking account. I do not include potential cash flows, because they are not funds actually received and in my hand.

In addition, my voluntary investment contribution (outside of my 401K plan) and savings deposits are included as expenses simply because of their rudimentary nature. It is funds coming out of my bi-weekly payroll and thus I consider it an expense purely from an academic perspective.

One of the cardinal rules of  financial planning is "to pay yourself first;" thus, I maintain a systematic monthly investment to an equity mutual fund, as well as a transfer from my checking account to my savings account. Online banking makes this swift, neat, and efficient.

I realize today's economy makes it extremely difficult to save; however, I feel it is important to at least try to put something away every month. I admit I have been blessed and fortunate to save in three distinct ways: my 401K plan at work, an equity mutual fund, and a savings account with my bank. I am very thankful for my present circumstances and cannot claim any responsibility for my good fortune.

Budgets in this era are very important. Understanding how to build an Excel-based budget spreadsheet takes a little time but is really not that difficult. If you do not have access to a personal computer, then pencil and paper will serve the purpose. Remember, the positive difference (surplus) left over at the end of your monthly budget is your undirected discretionary income. It is helpful to direct those funds into some kind of savings vehicle.

With a tough economy, I realize how important and relevant budgets are to my financial wellness. In fact, I cannot live without budgeting.

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Joe Thompson, My Journey Out of Debt Customer Blogger, CareOne Services, Inc. Joseph Thompson

Joe Thompson has been a Debt Management Plan (DMP) customer with CareOne Debt Relief Services since September 2008 and recently graduated to become debt-free!! Joe Thompson is active in many non-profit areas including; acting as Site Director for I.S. 8 NIKE Youth Basketball and has served as a mentor to many young inner city youths. As a hobby, Joe is a high school and college basketball referee in the New Jersey tri state area. Having officially completed the Debt Management Plan, Joe Thompson is excited to share what his experience on the DMP was like as well as what made his experience a successful one. Look for more posts under the My Journey out of Debt blog. Compensated CareOne Debt Relief Services Blogger.

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