Financial planners regard a householdbudget as central to buildingwealth and creating a financiallysecure life. Here are a handful of tipsthat many Certified Financial Planner™professionals use:
•Don't call it a budget. Considerother descriptions, such as a "savings andspending plan"or "cash-flow management."A budget connotes a straitjacket,doing without, etc. A savings and spendingplan focuses on being in control ofyour spending and making informedchoices for directing dollars.
•Spend less than you earn. Buildingwealth and financial security is based ona simple premise: Spend less than youearn. That's difficult to do if you don'tknow what you're earning and whereyou're spending it. That's the role of aspending plan.
•Develop a financial plan. Trying tocreate a useful budget without a comprehensivefinancial plan is like workinga trapeze without a net. People are mostmotivated to stick to a budget whenthey develop a financial plan based ontheir life's financial goals and values.From there, they establish a supportiveand comprehensive spending plan.
•Choose your method. Some peoplework best with a detailed spending planthat tracks every penny. Others do betterwith a top-down approach (ie, they firstset aside funds for their savings goalsand major expenditures such as a home,insurance, and groceries, and let littlethings fall where they may).
•Pay priorities first. Regardless ofwhat approach you take to budgeting,be sure priorities are paid first. Thatreduces what you can potentially fritteraway on less consequential spending.
•Track spending. Even if you prefera more general top-down approach tobudgeting, it's often insightful to initiallytrack all spending closely for at leastseveral months, just to get a feel forwhere your dollars are going. Sometimesthe largest expense category in a budgetis called "miscellaneous."Meticulouslytrack your cash expenditures for a monthor so. You'll be surprised how muchmoney disappears into that miscellaneousspending black hole.
•Practice with short-term goals.Budgeting for a modest, short-termexpense goal is good practice and canhelp motivate you toward more expensive,long-term goals.
•Spend from subaccounts. It isoften effective to establish savings subaccounts(eg, a vacation, car, education,or retirement account). With a single,large savings account, it's far easier toblow your money.
•Cheat. It's okay to occasionallycheat by overspending in a categorywithout ruining your budget or feelinglike a failure.
•Look for signs. Regardless of howdetailed or broad you are with yourspending plan, there's a simple way togauge whether it's working. Are youincreasing savings and decreasing debtat a good pace, or are you dipping intosavings and investment accounts to meetcash-flow needs?
•Check in now and then. Check inwith your spending plan now and thento see if it's still accomplishing what youneed for your circumstances. Majorchanges in your life may require somerefining or revamping.
This article has been produced by the Financial
Planning Association (www.fpanet.org), which is
the membership organization for the financial