- The first steps involve listing all daily, weekly and monthly expenses, which include rent or mortgage, car payments, utilities, food, insurance, credit card and loan repayments, gas and all incidentals. This is the time to be both accurate and self-aware, for leaving out items or approximating others can measurably distort the budget. The sum of all these parts should then be deducted from total income, which yields the amount left over for savings and discretionary spending such as for restaurants and movies.
- The budgetary process may well provide negative surprises that must be effectively analyzed and addressed before success can be claimed. If just a few coins remain at the end of each month, rainy days can become a serious problem. All costs should be divided between those that cannot be avoided, such as rent and utilities, and others for which there may be some flexibility. This process will provide a stark look at financial priorities and is effective in paring unnecessary expenses.
- The most sophisticated budgets and careful plans are useless without disciplined implementation. Any extra money found at the end of the month after all essentials have been paid should be put into a savings account, money market fund or retirement plan. Living month to month would be fine if your life expectancy were 30 days, but the key is to closely adhere to your plan, put all of your budgeting efforts to good use and then benefit from the results.
- A budget that works great for a few months is as valuable as last week's weather forecast. Without careful adherence over the long term, all the initial sacrifices will have been for naught. On the plus side, people with the discipline to stick to budget plans are generally motivated to excel at their careers, which can lead to steady increases in income, more flexibility and accumulating assets.
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