When it comes to personal finances and continued financial success, one of the best tools to use is a budget. People often hate this word, thinking of it as something that is constricting, that runs their life and that forces them not to use their hard-earned money the way that they want. However, the opposite is often true. A budget can really help you figure out how to best spend your money so that you can have enough to spend on the things that you really enjoy—like vacations—without accidentally overspending on something else. When used correctly, a budget offers freedom not constraints.
One of the best things to do when creating a new budget is to make sure that you really think about all of the costs of living. People sometimes overlook things, forgetting exactly how they are spending their money, and all of these small charges can add up. When the budget does not balance at the end of the month and they do not have the cash they need to pay their bills, they are surprised and disheartened. It does not have to be this way, though, as comprehensive planning can really help.
For example, when buying a new car, the main cost is going to be the monthly loan payments. These may come in at $500 a month, for example, and easily fit within the budget. However, other payments must be considered as well such as the cost of registration, license plates, insurance and maintenance for things like oil changes or brake pads. All of this has to be factored in or the budget is going to come up short even if the car seemed like it was affordable. Many budgeting problems are created by things like this, and they could be easily avoided.
The trick is to really write out everything beforehand and talk to all parties who will be involved. For instance, in the example involving the car, you need to speak to a local insurance agent, to the financial department at the dealership, to your bank’s financial officer, and to the officials at the DMV. However, this idea can be expanded to any new purchase or line of credit from a home to a credit card so that you are aware of the real costs.