How To Budget and Improve Your Finances

Do you know where your money really goes? That’s the whole principal behind creating a budget. A budget allows you to track, adjust, and improve how you spend money. A good budget should include the following:

Budgeting Steps

• Budgeting Step 1: Track spending
• Budgeting Step 2: Creating an emergency fund
• Budgeting Step 3: Creating a re-investment plan

When you create a budget it’s very easy to see where you are overspending. Use the Free “My Budget Plus” tool to get a budget started.

That leaves $40 per/month or $480 each year.

Using the above example you should call your cable and cell phone providers to see if there is a better deal. Lowering a few expenses could improve how much money you have left over each month.

Step 2 of your budget should include a way to fund an emergency plan. An emergency plan is 6 months of your total expenses. From the above sample your emergency fund should total $2739. This total does not include your paycheck deductions. An emergency fund should be placed in an interest bearing account. Once you have enough money in your emergency plan you should start a re-investment plan.

Step 3 of your budget involves learning how to re-invest money you have left over each month. If your emergency fund is in an interest bearing account and you have a mortgage, using the left over money to pay down your mortgage principal.

Paying Down Your Mortgage Principal (Example)

Let’s say your current mortgage payment is $1289.12 each month, which includes your taxes and home insurance amounts. You have a “30 year” mortgage at 6.615%. Each months you apply the extra $40 to your mortgage principal. See the chart below.

With the extra $40 added to your mortgage principal each month your balance at the end of the year is $157,325.07. Without the extra payments towards the principal at the end of the year your mortgage balance is $157,819.89. The more you can add to the principal of your mortgage the faster you can pay it off and save on interest payments.

The full version of the “My Budget Plus” tool does all the calculations for you.