We’ve all been there. We’ve all overspent at one time or another and gotten ourselves into a financial mess that we can’t seem to fix. When this happens, it causes stress – major stress. It’s no secret that stress can cause problems; problems like high blood pressure, heart attack, and marital and family problems. All of these are serious and we don’t want any of them in our lives. This is where personal budget planning comes in. When you set up a budget that is functional and livable, you eliminate all of this stress. So in a very real sense, a budget can save your life and make you a much happier person. Let’s look at some of the basic steps to a personal budget plan.
- Budgeting – You need to examine your actual cash flow. This means writing down every penny of incoming cash and every penny of out-going cash. You also need to include extra in the out-going cash to cover expenses that you didn’t know about – extra activities fees for kids, surprise medical bill etc.
- Income protection – Set up a plan to protect your income for short and long term including disability funds, unemployment funds, and long-term care.
- Emergency funds – start with a goal of having $1,000 set aside and then work up to having enough money set aside for up to 6 to 12 months.
- Debt elimination strategies – Start a ‘debt acceleration’ plan. Find the money that you are spending unnecessarily (dinner out, entertainment) and apply it toward your debts to pay them off faster. Convert high-interest debt to low-interest debt to pay off debts more quickly.
- Saving and investing – After you have paid much of your debt off, start learning how you can use that money to save and invest for your retirement.
Not having a budget and slowing (or quickly) adding debt will eat at you over time. It gives you a feeling of helplessness and feeling like you’re out of control. As your debt and feelings of helplessness are building, so is that stress. You are slowly causing yourself health problems and more than likely, relationship problems. Now that you know the five basic steps to personal budget planning, use them to prevent problems from happening in your life.