How do I create a budget?

A major step in keeping clear of foreclosure or trying to get out of a current foreclosure is knowing how to handle money. Nobody intends to have a home foreclosed on. Usually the cause of such situations is a lack of understanding about how to plan and set goals as it relates to finances. Most people that fall into foreclosure either have bitten off more than they can chew financially or ran into hard times that could have been avoided with better planning.

Some people run when they hear the word "budget". It calls up visions of living in rags and never leaving home, taking hours to analyze spending habits and watching every penny. This doesn't have to be the case, though. Really, a good budget is just a plan on how to spend your money. That sounds good, doesn't it? Who doesn't like to think about spending money?

The first step in creating a budget is looking at what you make. What is your actual income both before and after taxes? If you are getting a large tax refund or having to pay a big sum in taxes every year, it might be a good idea to adjust your withholdings. Ask your employer for a W-4 and look at how you could change what is currently being withheld from your check.

Now you need a plan in writing and one you intend to follow. If you don't reduce your plans and goals to writing, you won't really have a good idea of how realistic your expectations are. And no matter how good your intentions are, it is difficult to follow a plan if you don't know what it is. Sometimes, writing it down opens your eyes to things you didn't even realize you were spending money on. You might not even miss that $5 cup of coffee you're buying at Starbucks every morning and it could even save you $150 over the course of a month.

Once you know what you are actually bringing home every month, take a look at what your actual expenses are and what disposable income you have. Disposable income is anything left over after you have paid for all necessities. Take your income and subtract out your house or rent payment, groceries, utilities and what must be paid toward debt to stay current. Any necessary living expense is taken out and what is left over is your disposable income.

If you don't have any disposable income, you are spending more than you make. It is time to take action and find places where you can cut back costs. Some people feel like this is impossible to do, but you have to realize that living beyond your means will eventually put you in a much worse place. It won't take long before spending more than you make catches up with you and puts you in a difficult situation. A good place to start is by using a percentage budget. A percentage budget gives you a guideline for how much you should be spending in each area of your life. For example, most experts will advise that you don't spend more than 35% of your income on housing expense. If you are above that mark, you may be living above your means and need to make a change. Make sure you save for an emergency fund and are working to pay off as much of your debt as you can. Sometimes taking a temporary second job to get out of a pinch can help less the strain.

Planning things out makes life less stressful, and even though it may mean a temporary time of sacrificing a few of those meals out on the town, you will be doing your self a long-term favor by straightening out your finances. The essential matter here is to persevere and don't give up when times get a little difficult. And if you are having trouble doing it on your own, there are plenty of qualified individuals who can help you learn how to make those ends meet.