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Budgeting before Bankruptcy.

Budgeting is a word that does not exist in many people's vocabulary. However, if you don't create a financial plan and stick to it, chances are you will live paycheck to paycheck for the rest of your life. The only way to get ahead in life and reach your financial goals is through budgeting for your future.

Most people resist the concept of budgeting. They believe it will place spending constraints and prevent them from having material things. Instead, they rack up enormous credit card debt, take out personal loans and purchase homes with high-interest mortgage payments. While they believe they are living the good life, they are actually placing a financial ball and chain around their neck.

Budgeting is not difficult, but it does require discipline. The first step in creating a budget involves taking time to create a worksheet. This can be done by compiling income and expenses on a piece of paper, using a software program such as Excel, or purchasing budgeting software.

Create a list of your household income including wages, commissions, bonuses, child support, interest and investment income, and income derived from miscellaneous sources such as babysitting or handyman repairs.

Next, create a list of withheld income taxes including federal, state, county, social security and Medicare.

Last, but not least, create a list of monthly expenses. This section is typically the most time-consuming because the majority of people do not account for daily expenses. A good way to keep track of small expenses that eat away at your budget is to carry a notepad with you and record every dime you spend for an entire month. Doing so can be exceptionally revealing and help pinpoint areas of unnecessary expenses.

Monthly expenses generally include rent or mortgage payments, rental or homeowners insurance, property taxes, homeowners association dues, maintenance and repairs, utilities (electric, gas, water, sewer, phone, cable), food, health insurance premiums or co-pays, medical expenses (health, dental, prescriptions, glasses or contacts), transportation (car payments, insurance, gasoline, repairs, bus, subway or taxi fare, parking, tolls), debt payments (credit cards, personal or student loans, clothing, entertainment, investments (IRAs, stocks, bonds, mutual funds, real estate), family obligations such as child support, alimony or daycare, pets (food and medical) and miscellaneous expenses such as haircuts, manicures and spa treatments.

Once your list is created, tally up totals in each category. If your expenses are more than your income, budgeting can help you determine where you can cut corners to reduce spending. It is imperative to review every expense to determine if it is crucial to your existence. If not, find a way to eliminate it as quickly as possible.

For instance, if you pay someone $30 per week to maintain your lawn, you are spending $1560 per year. Lawn mowers are relatively inexpensive and used mowers can oftentimes be purchased under $50. Instead of paying someone else to mow your grass, you could be investing that money into a retirement fund.

Credit cards are your worst enemy when it comes to budgeting. If you owe $10,000 or more in credit card debt, consider debt consolidation or debt settlement to reduce monthly expenses. People unable to control their spending habits would benefit from participating in credit counseling.

Developing a plan and budgeting finances can set you free from financial hardships. Instead of perceiving it as a daunting task, embrace budgeting as your ticket to financial freedom. Doing so can provide peace of mind and help you amass a nice nest egg for golden years. Ignoring it can send you down the path to bankruptcy.