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Personal Finance Tips on Budgeting

By Charles Hopkins Published 09/19/2006 | Finance

So you have thought that earning a good salary is all? How do you make use of it is more important than how much salary you actually earn. Your long term success in personal finance will be measured by how much you have been able to save in the end. To keep a reasonable balance between what you earn and what you save, you need a budget.

As experts are of the opinion that financial success of any individual at any given point of time is the function of three combined efforts:

Your ability to put a ceiling on your day-to-day finances without obstructing the ways of living a satisfactory and comfortable life.

Working out a personal finance plan with an eye on the future such as procuring a house, retiring comfortably or fulfilling certain dreams like making a world tour, etc.

Contributing to an emergency fund for making a financial safety net to prevent financial disasters followed by any personal tragedies.

Now the first and foremost of these three financial efforts is learning to keep day-to-day expenditure within a fixed limit. In other words if you want to have a healthy personal finance, you have to learn to make a budget and strictly adhere to it.

No matter how many thousands of dollars you bring home on every payday, only a well chalked out budget can carve out a comfortable future for you. On the other hand, a person with a frugal income can live a satisfactory life if he handles all the resources at his disposal with discretion. This old adage is worth mentioning: "choose your coat according to the clothes you wear". Learn a lesson from it and you will always remain miles ahead from your financial goals.

Now the question is, how can you define a budget? A budget is a kind of financial tool in the form of a written plan that includes particular goals and the ways to measure the rate of success for achieving that goal. We often make the mistake of viewing budgets from a negative point of view, as something that's putting a restraint on our monetary powers. On the contrary, a budget enhances the power of your money to work for you when you need it most.

How can you get started in making a budget to improve your personal financial health? First of all, take the trouble of downloading a budget worksheet from the internet. You will find many of them in most of the websites dealing with personal finances. In the worksheets, you will find the separate categories for income and expenditures. Consult the expenditures of the previous few months and add or delete categories to suit your personal budget worksheet. When making entries for the expenditures also take into consideration your hobbies; there is no point in depriving yourself of the little pleasures of life. What you need to do is keep the expenditure to the lowest minimum level possible.

Similarly, when you are making entries for income, add all the components of your gross salary and also do not forget to add to it the interest income, dividends, bonuses or incomes from other miscellaneous sources.

Now just try to calculate, which expenditures you cannot do without and which ones you can let go of. If you analyze neutrally, you will be amazed to find how much money you have just thrown away.

When you are left with a substantial amount of net income (the difference between the gross income and gross expenditure) do not make the mistake of leaving it entirely with your checking account. They tend to get exhausted unnecessarily. Transfer most of it to an account which can not be liquidated on a whim.