A budget gives financial discipline to an individual or organization. Learning how to budget money is vital because it helps you plan your wealth, income, expenses and investments and gives you a solid financial footing. So a budget is a financial plan that helps you track expenses, control the money you earn, and help you have enough money when unexpected calamities arise.
The first step in creating a budget is knowing your finances. You need to make a list of all your sources of income. Your income can be a daily income from a self-employed person or a regular salary from an employer. Add up all the income earned in a month. Then calculate the average income you earned in the past 3 months. This average forms the basis of your cost budget.
The next step in the money budgeting process is to create a fixed expense list. Fixed costs are expenses that must be paid every month. Examples of these expenses include rent, utility bills, insurance premiums, loan or mortgage payments.
Then calculate the variable costs. Variable costs are costs that you cannot accurately predict. Examples of these expenses include groceries, gasoline, entertainment, hobbies, and travel.
The next step in the process of budgeting money is to create a list of expense categories. You must put money in a savings account to make one of the categories. This amount of savings should be viewed as an investment rather than an expense.
You must first allocate resources from your income to pay off debts such as mortgages and loans. You must then allocate money to pay rent and utilities and other fixed amounts such as insurance premiums.
Your next step is to allocate money for variable expenses such as groceries, gas, entertainment, dining out, and hobby expenses.
The next step in the process of budgeting money is to put the allocated amount into a savings account as savings. This should be the first payment of your income each month.
You need to track your variable expenses throughout the month and make sure you don’t exceed the amount allotted in your budget for groceries or gas. If you think your grocery spending is higher than you expected, try cutting back on entertainment or another variable expense.
The final step in the money budgeting process is to stick strictly to your budget. Check your expenses every month and try to increase or decrease the allocated money in different categories depending on your needs. Sticking to the same budget every month may not always work because the cost of goods and services does not stay the same.
Financial success is the result of careful financial management. Financial management requires careful planning and this financial plan is called a budget. Once you know how to budget money, you will always be in control of your expenses and financially healthy.