Who wouldn’t want to be a millionaire?
$1,000,000 may seem like a gargantuan amount, but getting there is not impossible ? the secret lies in intelligent investing.
However, before even thinking of investments, one HAS to start with savings. No savings directly implies not having additional cash to invest. It is possible to save without budgeting, but drawing up a list of possible and probable expenditure for the month/year makes it easier to streamline your efforts. After all, a budget is merely a sum of money put aside for a particular purpose.
So, how DO you draw up a budget?
The basic process of planning a budget involves listing your costs on a monthly basis and then deciding on an allocation of fund to reflect what is important to you. Or, in financial speak, planning a budget involves itemizing a forecast of an individual’s income and expenses expected for some period in the future.
At the risk of sounding obvious, I’d say, make sure you base your budget on priorities and logic, rather than impulses.
List the items you’ve bought in the past two months, and then categorize each of these purchases under one of the following four categories: Vital, Important, Nice to Have, or Basically Worthless.
Here are a few typical purchases, which you can use to start off your own list.
- DVD Player
- Dinner out
- Four wheeler
- Name Brand Clothing
- Home Repairs
- Retirement Fund
- Life Insurance
- Emergency Fund
- Payment to Reduce Debts
- Cell Phone & Service
- Music Lessons
- Second Car
- Child’s Education
Maybe your child has just gotten his/her driving license, and you absolutely had to buy a second car. Then again, maybe you could have put off buying it a few months longer, or had them contribute, even if marginally, toward it.
Similarly, did you really need to eat out that often? Cooking, or eating in, is much cheaper, and would also save money on gas, apart from being a healthier option.
Redecorating is another avenue that can either make or break your budget. If you absolutely have to repaint your walls, one fun (and cheap) way to do it, is to organize a painting party and arming your friends with paint, rollers and some aprons.
Either way, once you’ve figured out if a particular purchase was imperative, you’ll have a better idea about budgeting in the future.
However, ALWAYS beware of impulse buying. Take care not to give in too much. Even a few seemingly inexpensive purchases WILL add up at the end of the month, wreaking havoc on your budget.
Using the above list as a base, first allocate funds for purchases under the “Vital” header in your budget for the upcoming month. Then make sure there is some money for the “Important” things. Only after making sure theses have been paid for should you spend on “Nice to Have” items. Needless to say, don’t waste money on stuff under the “Basically Worthless” category.