First and For Most Set a Budget!

First and For most Set a Budget

As Americans we overspend! We self indulge! Bankruptcy and foreclosure is the highest it has been in decades. Filing bankruptcy or having your home go into foreclosure is a painful process. These avenues where set up to help us out when those unexpected things happen in life like catastrophic illness or loss of employment etc. Too often these steps are taken because of lack of planning on the consumers’ part.

Now is the time to set a budget. I have always set a budget but have advoided meeting with a financial planner because I thought they would take away my freedom to choose what I wanted in life. I found out that their goal is to help me get what I want in life sooner. You may or may not want to get with a financial planner but make sure you at least commit to a budget.

Before you set down to do a budget think about (if you have a significant other include them) what you want to do in life. How soon do you want to retire, what kind of vacations you want, what major expenses do you have coming up such as education etc.. List the things that you want to accomplish and list the debts you have. Decide how much money you can spend a week for an allowance to eat out, go to the move or what ever your interest is. Make sure you allow for income tax and charitable donations and a must 401k/savings. Once you have your list together you are now ready to look at what income you have to work with.

Do you know how much money you really make? Review you pay checks and what your take home pay is. Did you have to pay taxes last year? Are you paying enough federal and state taxes, do you need to inculde more taxes in your budget?

After you have compared your income to your current debt and what your goals are ask your self how much can my house payment be (this must include your house payment, property taxes, hazard insurance, mortgage insurance if applicable and any homeowners association fees) ?

Lenders like to see housing between 28-31% of your gross monthly income of course lower is always better. Personally I could never afford a housing ratio of 28-31% I like other things too much. My housing debt has typically been around the low to high teens.

Mortgage brokers/lenders don't usually want to see your total debt over 38-41% of your total monthly income. This is your housing debt along with consumer debt (does not include utilities, taxes, charitable contribution, day care)

There are some good web sites out there to help you get started on a budget.