As we conclude the holiday season, it's a good idea to talk about developing and maintaining a personal budget. This is something I do annually to help me plan for the year ahead, and certainly something that everyone should consider, especially in these uncertain economic times.
One of the many things I need to focus on is paying off any Christmas debt. Personally, I've tried not to put more on my credit cards than I can pay off in the next month, but there are occasionally a couple of exceptions for which I have to work out a payment plan to minimize interest charges.
My underlying goals are not to maintain a balance on my credit cards and pay down any high rate credit card as quickly as possible. This way I know I won't earn more than I would be paying in interest by investing any excess funds. For example, if I have a balance on a credit card with an APR of 12% and I have an investment option that could earn 3%, I would pay down the high rate debt, prior to investing. Essentially I can't earn enough with the investment to compensate for the interest on my debt, so it pays to get rid of the debt first.
Now that you've sorted your credit card debt, you need to review your finances to establish some baseline monthly expenses and compare that to your take-home income. This is not a complicated task, but will require some legwork to establish your normal monthly expenses. Make sure to hang on to ALL receipts for any spending during the course of a given month. From here, you can start to really see what recurring monthly expenses look like.
I use the Quicken software package as my checkbook, which allows me to categorize and analyze my expenses for any given period. I review where I spent my funds in the past month and make adjustments to items where I think my spending may fluctuate up or down. For instance, I'm planning a special vacation for the kids this year that I haven't done in prior years, so I've made sure to include the estimated cost of this in my yearly budget to ensure I have the funds to allow me to be able to say "bon voyage!"
Now that you've established your normal expenses, you can compare that to your take-home income and calculate the excess funds you have available to:
1. Pay down any high interest rate debt you've accumulated 2. Establish or continue a savings plan 3. Do both of the above 4. Really turbo-charge your yearly party fund (can you say, bouncy-house?)
Money matters can be complicated, but I hope this overview helps you tackle the task of personal finances with a bit more confidence. Here's hoping you have a wonderful and prosperous New Year and don't forget to party on![author] [author_image timthumb='on']#[/author_image] [author_info]Greg is the Chief Financial Officer for House Party. He lives in Stamford, CT with his sons, ages 9 and 12. In his free time, he loves playing and coaching baseball, sailing, skiing, biking and swimming. He's also been know to ride a Harley Davidson and is an avid fan of Deadliest Catch and Gold Rush! Greg's party tip: Play your music loud, like being in a bar watching a band. That kind of loud.[/author_info] [/author]