The first step to any great financial plan is a sound budget. If you decide to save some money, pay some bills, or go for your dream vacation, it all start with a well structured budget. Budgeting is the process of creating a plan to spend your money. All simply put, it’s the act of balancing your expenses with your income. The steps below will help you set up a budget that will get you to your financial goals.
- DETERMINE YOUR INCOME.
The first thing to know before creating a budget is to know how much money you have coming in. You may in many circumstances be tempted to overestimate but using your actual amount is an important factor to creating a working budget. Remember to subtract your taxes and all other deductions before quoting the amount. It is the NET INCOME that is needed. Aside your actual salary, get an accurate picture by adding in any extra income such as an income from an extra job, dividend, interest or rental income.
2. CALCULATE AND TRACK YOUR EXPENSES.
After knowing how much you receive every month, it is now time to know how much you spend as well. Start this by writing down all your expenses.
Begin by listing all your fixed expenses such as mortgage or rent, utilities or car payments. It’s unlikely you will be able to cut down on these type of expenses, but it is important to know how much of your income they take up.
Next list all your variable expenses. Those that may change from month to month such as groceries, gas, entertainment. This is an area where it is more likely to cut down on expenses.
3. SET SAVINGS AND DEBT PAYOFF GOALS.
In order to determine realistic savings or debt payoff goals, you must find out either you have a budget shortfall or overage. Do this by subtracting your monthly expenses from your monthly income. If you determine you are making more than you are spending, congratulations. Now this amount can be geared towards savings and paying off debt.
But if you determine you are spending more than you are making, you need to either bring in more income by through another income source or start cutting down on your expenses to have some extra money to save and don’t go further into debt.
To cut down on your expenses, you will have to consider your variable expenses such as phone bills (or top-up cards), cup of coffee which add up overtime. Stop buying so much clothing. Once you have a clear picture of what your unnecessary expenses are, don’t think twice before cutting them or where possible, eliminating. Having about 10 or 20 percent of your income left over each month to add to your savings is a good start to a financial growth.
4. RECORD SPENDING AND TRACK PROGRESS.
Putting into records all your expenses for the month helps you to spend just as planned. Consulting your budget and keeping records will help prevent impulse buying.
5. BE REALISTIC.
Aim at sticking to your budget most of the times, and you are bound to reach your financial goals.Breaking your budget occasionally is OK, providing you get back on track as soon as possible.