Making a budget can be so strenuous for many people especially if they don’t know how to do it, but if you know the proper way to go about it, it might be actually so easy and you might get to enjoy it.
Budget is a quantitative expression of a plan of action that aid in coordination and implementation of a summary of objectives of an entity on revenues, expenditure and financing. It quantifies management expectations regarding future income, expenditure, cash flows, financial position and the supporting plans. A budget is simply a plan you write down to decide how exactly you will spend your money each month.
When setting budgets, you have to answer these three questions:
- What is my income? You need to know what you earn either daily or monthly even year . Without having the proper knowledge about your income, and also giving due consideration to the income, you might not be able to a have working budget.
- What are my expenses? You need to identify all you are going to spend your money on. For instance, write out the things you will likely pay for, it can be subscribing for cable network, paying for you power supply, or even the foodstuffs you will need for the month or your house rent. After you have finished identifying your expenses, write out the amount you are likely going to spend on each of them. This will give you the knowledge of how much you are going to spend and how much you will have left.
- How much have I been spending previously? Yes! By asking yourself how your previous spending habit has been like, you will be able to evaluate and analyze if the current budget will be able to be in unity with it. Remember if you are making a budget, it has to be within your income. Don’t make a budget that expenses will be greater than your income. This can be so dangerous to your financial life.
STAGES IN MAKING BUDGET
There are several stages in preparing a budget and they are:
- Getting the necessary information: This is the stage in which you get information about your income and your expenses.
- Making a plan: Here you need to plan how you are going to work with the information you have gotten about your income and your expenses. This is actually the stage of making the budget because you have to allocate money for each of the items in your expense list.
- Implementation stage: This is the stage in which you agree on the plan you have drawn out for yourself and you start working with it.
There are two basic budgeting methods and they are:
- Incremental Budgeting: This is when you use your previous spending pattern to make a budget that will guide you in the future.
- Zero-based Budgeting: In this method of budgeting, you make zero assumptions on your spending levels. You make a new spending list and you also make new allocations for each item on the list. The new budget does not depend on the old spending habit.
IMPORTANCE OF MAKING A BUDGET
It is very important to make viable budget when it comes to spending money.
- It makes you have control over your money.
- It keeps you away from spending unnecessarily.
- It keeps you focus on your financial goals.
- It gives the knowledge of what is happening with your finances.
- It helps you organize your spending and savings habit.
- It saves you the problem of getting confused over making decisions on how and what to spend your money on.
- It helps you plan for your future expenses.
- It helps you save money for the future.
- It helps you avoid running into debt.
- It makes you to be more productive financially.
Making a budget is very important, if you want to keep track of your finances. It is not enough to make a budget at the end of each month and then throw it to the winds. If you want to avoid living in debt, you have to work with your budget. Don’t overlook your budget. Make a budget today and see how it will help you manage your funds.