Budgeting is an important aspect of finance and the better your budget is the lesser the requirement for loans. A well managed budget can become your all important tool especially when it comes to debt management. If your budget is sound then it will help you to keep a track of your daily or monthly expenditures and you will also be able to keep a tab on your loans if any.
There are many people who suffer as they don’t have the income stream or savings to pay back the loan amount. The result is heavy fees, fines or even an increased interest rate that is charged to the loan. At the end of the day, you will probably end up paying up the entire loan amount plus 1/3rd of the loan in interest and fees. High fees and interest rates offered by banks worldwide has become a concerning factor, which is slowly leading to their unpopularity.
Creating a Budget
Creating a budget is quite easy although managing it might be a little difficult. There are different types of budgets like personal budgets and debt consolidation budgets etc. If you are thinking of making a personal budget then the first thing is to define where you would want to be in life and define or re-define your goals. If you intend to start your own business then you will have to make serious budgetary considerations. This is why pre-defining your goals is essential while creating a personal budget.
Secondly, you will need to understand the underlying importance of budgeting. As you are aware of homeownership is quite unpredictable as well as expensive. You might encounter certain sudden requirements that may include internal damages, scraping off paint, internal repairs etc. Every home needs a repair sometime or the other. It is always better to be prepared in advance. Hence, it is always suggested that you should always include repair costs in your budget.
A budget is basically a comprehensive plan that will help you to cover all your expenses you’re your current income. If you are able to plan a good budget then it can provide you with money on a regular basis for any uncertain event. One of the key factors governing homeownership is budgeting.
Budgeting basics
Here are some tips for creating budgets and maintaining them:
1. You need to have complete information regarding the due dates of your bills
2. You should have a fair idea regarding the kind of money you spend monthly
3. You need to plan for all your periodic expenses like property taxes, car insurance, homeowners insurance etc.
4. When you are drawing a budget, you need to keep away from making impulsive purchases as it can completely deflate your budget.
5. Mention the requirement of regular home maintenance and internal or external repairs in your budget. According to experts, you should ideally keep 1% of the purchase price of your house for any types of repairs or for annual maintenance.
6. Adhering to your regular savings plan is critical.
7. Make note of your fixed expenses and keep some percentage away for any emergency or variable expenses
8. Keep track of all your financial statements and this should include your income statements, bank statements, utility bills etc.
9. Before creating a budget, make a note of the various sources of income especially if you are self-employed.
10. Lastly, create a comprehensive list of all expenses being incurred in the last few months. This will help you to create a sound budget.
It can often require a little work to maintain a budget and there are times when it may go out of control. If your budget goes out of control then you will need to stop there and then and formulate your budget all over again. This time include the expenses or the reasons that forced the budget to break. To follow the right course and to maintain your budget, you need to keep tabs. keeping regular tabs of your expenditure helps. You can keep weekly or monthly tabs depending on feasibility and what is comfortable.
If you are able to maintain and follow your budget then it will be easier for you to even payout your loan requirements. Today, the market is rapidly changing especially with peer to peer networks and social lending communities appearing on the horizon. These networks charge lower interest on loans and the main aim is to make the buyer as well as the lender to feel responsible towards each other. Lending hubs have appeared in the UK and the US and there are a couple of community borrowing hubs expected to capture the Australian market soon.
As interest rates in Australia have continued to rise and typical interest rates on home loans are now often 8% or more and personal loans can be anything up to 35% depending upon your credit profile.