Understanding Your Budget

Kimberly Watson, Editor in Chief
February 07, 2012 /

Knowing how to handle your income and allocating it accordingly is a worthwhile art. For many people it does not come automatically, they have to learn how to budget and allocate. We all have dreams, sometimes practical, sometimes extravagant, but, with only so much money to spend, it is necessary to limit your expenditure to the income. If not, reality and your dreams can meet with disastrous consequences.

At month end, the pile of bills can mount up and will need paying. If you are short of ready money, credit cards can be a temporary respite to help you.  However, they too will need repaying, if only at a later stage.

There is an excellent method of determining the correct way of budgeting. Take your gross salary – this is before deductions – and times it by .36 percent. Professional financial advisors, recommend that an average monthly expenditure of debt-to-income ratio should be less than thirty- six percent of your gross income. If yours is within this bracket, then it is a positive factor. If not, you need to institute a plan and put it into action, for reducing your expenditure and, providing you with a better understanding of your budget.

Make a list of everything that needs payment on a regular monthly basis. Include mortgage, insurance, schooling, car repayments and personal loans. Do not include in this list, household expenses or food, as these are variable items, differing monthly. These, only added to your budget when you have accounted for all the ‘list’ items.

If you find that you are badly overextended, it may be necessary for you to take out a loan temporarily. This should be towards paying outstanding accounts and not for frivolous items. It is important to remember, that loans are an expensive way to operate, therefore, reduce any outstanding amounts as soon as possible.


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