Many times, you learn from your friends through social media or watch shows on television on how you can budget your money for personal or family use. It seems that some of these tips do really work on your part but some do not.
Let’s first discuss budget and why do you need it.
A budget is a spending plan that accounts your monthly income and expenditure. It gives you an idea on how much cash it goes out and comes into your pocket.
Budget plan motivates you to do several financial goals such as saving up some money or putting money aside for your investment and/or retirement.
Without a budget plan, you’ll find yourself living beyond your means. You spend more than you earn and end up having no savings.
When you find another job and your salary increases, most often than not, your living situation changes. In this case, what you practice in spending money before may or may not work for you now. You need to revisit your budget on a daily or weekly basis.
Make sure that when you budget your money, it should reflect your expenses and income. This will only means that you are properly balancing your earnings and spending them wisely.
Do not go in a hurry when spending your money. Think about it first. If you need to purchase a thing, it’s a good idea to take at least one hour to think and analyze whether you’re spending your money in a right way or not. This will help you avoid any mistakes that are caused by drawing up your budget and spending it excessively.
Make your financial documents organized in one place. From your recent credit card bills to your income reports, you need to gather all these paperwork before you get started with your budget plan.
Next thing you need to do is to calculate your income. Sum up all your earnings from employment, investments, savings, or rental of any properties you own. Add dividends from stocks to your earnings. All must be added to arrive with your total monthly income.
Use a notepad, spreadsheet or any tools from your gadget to create a budget plan. Separate regular from irregular earnings. Calculate your overall totals for your yearly earnings and each income stream.
It is important to consider your monthly tax payments that you will deduct from your monthly total earnings.
Estimate how much money you’ll be spending. Look at your household and credit bill and any financial statements. Do not guess. Make a realistic amount of how much cash must go from your budget. Determine where you will spend those figures since this will be the basis of your budget plan.
Take into account your occasional spending such as birthday gifts, Christmas expenses and insurance expenses. Add these costs into your list of expenses so you will not get surprised when those holidays come. List them down on your budget plan and label them as occasional outgoings/expenses.
Next is to calculate your overall figure for your yearly expenditures. Divide the number by 12 so you’ll get your monthly spending on things like gifts.
Once you’re done with this, you may now create your budget plan. This should be aligned with your financial goals that you want to achieve as you budget your income and expenses.
Be realistic when you plan your budget. Add a little amount to spending where do you think it is impossible to estimate. Check all your expenses. Make sure you add petty expenses such as buying a coffee.
When you already have your budget plan, keep an eye on how faithfully you are sticking to it. Assess it regularly to see whether you’re on the right track or not.
Always remember your financial goals in every decision that you will make from paying your utility bills to making a purchase.
Identify what causes you not to achieve your goals. Look at your budget plan always when you decide to spend your money so you won’t lose your track.
How do you practice an effective budget plan? Do you have specific steps to take when doing it?