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Question of the Week

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Question

I need help making a simple budget. Any advice?  

Answer

Congratulations on getting started with a budget. The creation of a budget in my opinion is an important, if not critical, first step in gaining control of your personal finances.  By first understanding the balance between what you earn versus what you spend, you can identify areas for improvement. This will help you realize areas for eliminating or at least reducing certain expenses, options for possibly increasing income or both.  

I usually recommend doing a general, monthly overview budget to get a quick assessment of where you are, and whether at first pass you have a surplus or deficit each month. FPA has a Budget Worksheet that can help you with create your monthly budget. You may also want to check out FPA’s Budgeting: Managing Your Money with a Spending Plan guide that explains how a simple budget can help you take control of your financial life, get better use of your money and achieve your financial goals.

Then, if desired and indicated, I would recommend an annual, detailed budget to help drill down on your expenses to better understand frequencies, amounts and exceptional expenses.

Areas that also impact even simple budgets and are often overlooked are:

  • Frequency of pay periods
  • Current W-4 withholding exemptions
  • Income taxes
  • Retirement plan contributions, if any
  • Quarterly, semi-annual or annual expenses that are not planned for on a monthly basis

Many people overlook basic budgeting as too mundane and not worthy of the time and detail attention.  However, in my opinion before you can successfully plan for longer term goals such as college funding, buying a first home or retirement planning, you best have good control on your month to month cash flow.

Thank you again for your question and I hope my response has given you some concepts and strategies to consider. 

 

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