Most people are weary of budgeting due to the wrong perception that budgeting would mean having to stop spending on non-essentials and concentrating only on essentials. This of course is furthest from the true as budgeting really allows the individual to properly manage his or her account so that a comfortable living can be carved out. Get all the info you need here.
Learning to budget simply means learning to track spending habits to ensure less is going out and more in staying in. this would help not only in the short term but also in the long term financial health of an individual. The budgeting exercise should not be limited to people having problem with their finances per say but it should be inculcated from a very young age for every individual.
The budget exercise allows every individual with an income and expenses portfolio to make decisions about how they can best allocate the income to serve the expenses and yet leave some for the future, which may include a suitable retirement plan, a healthy savings plan or just about anything that won’t break the bank.
Budgeting helps to create a very visible short term expense scenario, which would include the payments of monthly bills and commitments. Then there is the midterm budgeting scenario which may include holidays, buying a car and other commitments that don’t require more than a few years to pay off.
The most commitment demanding budgeting is the long term one where fixed funds are set aside for retirement plans, purchasing of property, children’s education programs and such where the committed amount is significant and has to be sustained for a long period of time. Having a spread sheet drawn up which reflects the current income, projected income and corresponding expenses and future possible commitment will give the individual a better overview of how to wise work out a suitable and manageable budget.
How to create a budget
Taking the time and effort to sit down and concentrate on creating a budget usually sounds like the most demanding and unexciting thing. No matter how it is argued creating and sticking to a budget will eventually help keep an individual financially healthy. It is important to note that the more accurate information is forthcoming the better and more realistic the budget planning exercise will be.
How to make it
Withholding information or presenting distorted and incorrect information will not benefit in any way and will only end up frustrating all parties when the said budget does not work. The following are some tips on how to go about creating a budget: Compiling all financial statements available for close scrutiny. This should include bank statements, investment accounts, utility bills and any information of sources of income and expenses.
The idea behind this exercise is to be able to create an average monthly spread sheet so the more detailed the information the better. Keeping an up-to-date version of all sources of income is the next step to be taken. This may vary for those in the self-employment sector or for those in business.
However for all types of income taking into account the monthly total income amount is what is needed. Next there should be a very detailed list of monthly expenses created. Every detail should be included no matter how small or seemingly insignificant it maybe.
The item included should be the likes of mortgage payments, car payments, auto insurance payments, groceries, utilities, entertainment, dry cleaning and laundry expenses, auto insurance, retirement, college allocations, saving and essentially anything and everything that the individual spends on. Total both the income and expenses based on monthly calculations and then make the adjustments where necessary, especially if the expenses are more than the income. Make cut back or cut out wherever possible.
How to have budgeting success
Most people are afraid to attempt to budget because of the misconception that the resulting outcome of the exercise would be high stress levels. However if done in a proper manner budgeting exercise can not only be easy but surprisingly pleasant and experience. This is more so if the budgeting exercise can clearly show a good amount of saving possible without having to stave one’s self of the little pleasures in life.
Doing it right
The following are some practical suggestions anyone can try: Keeping the budgeting exercise as simple as possible is one sure way to encourage enthusiastic participation. Don’t categorize too much but remember to still maintain some semblance of accuracy. Having 2 – 5 categories would be ideal for working out a good budget easily. Be descriptive in categorizing everything accurately.
Avoid using terms such as miscellaneous and others as this would tempt the individual to justify random items that are more frivolous spending that wise spending. This can also contribute to the scenario of not having adequate knowledge on how and why such expenses were needed to be incurred. Tailor the budget to adequately fit the needs of the parties concerned.
Using example from others is a good idea but copying without proper thought or consideration would render the so called tailored budget useless. Have a specified amount for personal needs and sudden expenses clearly outlined and do not under any circumstances waiver from it. Also there is no need to always spend this amount as it can be accumulated and kept aside for possible indulgence sometime later.
Make provisions for major expenditures that would be necessary during the course of the year. Examples of which might include cost of major car repairs, replacing of major household items, cost incurred for major house upkeep exercises and other expenses that would be considered out of the norm yet necessary and costly.
Using a budget worksheet
A good and practical budget worksheet starts with an honest and open assessment of the monthly expenses of the business. This can only be done with accurate and precise information of all regularly occurring expenses, including any money that is spent of seemingly insignificant things.
Excerpted from the book Braving Budgets.
This excerpt has been edited and condensed for clarity.
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