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In a country whose economy is based on consumerism, we all have the tendency to overspend. We spend without regard for how much we actually earn which has then caused bills (from credit cards and loans) to pile up. In order to prevent the situation from going bad to worse, we have to start understanding where our money goes.
If you are suffering from bad credit history and you want a way to spend your resources more effectively, then you had better start a budget. How is this done? Here are a few tips:
Be diligent in keeping track of your daily expenditures. It`s like you making a calendar of activities - you also have to breakdown your daily expenses. Everything you have to spend on a week`s course should be jotted down, going into details and paying attention to cash expenses. Preparing daily, weekly and monthly budget helps you compare your expenditures to your income. Record every expense you pay on cash or transactions made through ATM or debit cards, including bank fees. For your income, record your savings and investments.
It`s not only your expenses that you have to consider, the other half is your monthly income. List all your sources of income, sales commissions, dividends and interests, bonus pays, pension or retirement income etc. Know all the deductions you will incur, and make an accounting of your total monthly income. This way, you can get an idea on how much money you can utilize for necessities and luxuries.
Now that you have identified your expenditures and income, it is now time to plan your expenses. Your goal here is to save and not to overspend. Here`s a suggestion on what you can write down in your budget plan:
1. On a piece of paper, write down a category detailing your probable expenses. Some categories you can utilize include: Home (rent/mortgage, property taxes, renter or homeowners insurance), utilities (electricity, gas, water, cable, phone), household supplies, food (groceries, breakfast, lunch, dinner, snacks), apparel (clothes, accessories), self care, health care, transportation, entertainment, travel, and many others. With this list readily available, you will have an overall idea on what you`re spending for and how much you can allot from your income.
2. To prevent financial problems, you have to scrutinize your budget very well. Allot a realistic amount for every item and stick to it. Do not buy impulsively. If you make a grocery list, then make sure you buy only what`s listed. Avoid purchasing items which are on sale especially when it`s not on your list. Chances are, you won`t need it.
3. Oblige yourself only to what you can afford. Before you look for a house to buy or rent, you need to know first how much you`re willing to spend. A good practice is to take out a loan first and use only the amount approved. This way, you won`t need to take out a second mortgage.
4. Avoid cosigning or being a guarantor for someone`s loan. When you`re a cosigner, you are obligated to pay as if you`re the primary borrower. There`s a risk that the borrower might not pay.