Budgeting Tip

Solve Financial Problems Using This Free Budgeting Tip

This simple budgeting tip is one of the best strategies you can use for budgeting and saving money. Let me show you how to use your budget to project different financial situations. This is the big advantage of making a budget.

Having a basic budget enables you at any time to look into your financial future and experiment with any number of imaginary "what if" situations like:

"What if I receive a pay increase?"

"What if I lease a new car?"

"What if I retire on my pension?"

"What if I paid off all my credit card debt?"

"What if I decreased my monthly expenses?"

A simple home budget can provide you with the answers to these questions and more. It can quickly give a whole new perspective to your financial problems and suggest possible solutions.

For example, prepare a second (imaginary) budget similar to the one described on my Making A Budget page, showing your monthly income and expenses.

However, this time...

Don't include the monthly interest paid on your credit card accounts; don't include the monthly interest paid on your car loan and/or personal loans; and don't include 25% of any impulse spending amounts (this includes magazines, coffees, movie rentals, iTunes downloads, and so on).

Notice the difference between the two budgets.

Now, total the three items not in your second budget.

These three items represent how much money you could conceivably save every month by eliminating interest charges and unnecessary purchases.

If the total of these items is even just 10% of your monthly expenses (and it might possibly be higher), you are spending a sizeable amount of your hard-earned income each month on avoidable items.

It's Now Up To You

Only you can decide whether spending that extra 10% is worth it. Ask yourself if it's worth paying those interest charges so you can have certain items now rather than saving for them and buying them later.

Ask yourself if you'd be willing to save money in other ways. For instance, would you be willing to pack a healthy lunch for work rather than buying a more-expensive, less-healthy lunch at a restaurant? Be totally honest with yourself because you must live with your answers.

Let's say you want to get a new widescreen HDTV and home theater system. The typical 10% interest paid on a $2,000 personal loan for one year can add up to $115, and many credit card holders pay just the minimum monthly payment, which amounts to a much greater interest cost, up to 18% and more. That works out to a "minimum" of $115 in interest costs just so you can have that television a year in advance.

But, you are the only one who can decide if it's worth paying high interest charges. Certainly the banks don't mind. This is where the use of this simple budgeting tip can assist you in making rational spending decisions. By examining different scenarios, you can discover ways to increase your income and protect your financial future.

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