A budget gives financial discipline to an individual or organization. Learning to budget money is vital because it helps you plan your assets, income, expenses, and investments and puts you on solid financial footing. So, a budget is a financial plan that helps you keep track of spending, exercise control over the money you earn, and help you have enough money when unexpected emergencies occur.
The first step in budgeting is knowing your finances. You should make a list of all your sources of income. Your income can be the daily earnings of a freelancer or a regular paycheck from an employer. Add up all the income earned in a month. Then you need to calculate the average income you have earned in the last 3 months. This average will form the basis of your spending budget.
The next step in the budgeting process is to make a list of fixed expenses. Fixed expenses are expenses that must be paid every month. Examples of these expenses include rent, utility bills, insurance premiums, loan or mortgage payments.
Next, you need to calculate variable expenses. Variable expenses are expenses that you cannot accurately anticipate. Examples of these expenses are groceries, gas, entertainment, hobbies, and travel.
The next step in the budgeting process is to make a list of expense categories. You should make putting money in a savings account one of the categories. This amount of savings should be considered an investment rather than an expense.
You must first allocate funds from your income to pay off debts such as mortgages and loans. Then you must allocate funds to pay rent and utilities and other fixed amounts, such as insurance premiums.
Your next step is to allocate funds for variable expenses like groceries, gas, entertainment, eating out, and hobby expenses.
The next step in the process of how to budget money is to put the amount allocated as savings in a savings account. This should be the first payment from your income each month.
You need to keep track of your variable expenses throughout the month and make sure you don’t exceed the amount allocated in your budget for groceries or gas. If you think your grocery expenses are higher than you expected, try cutting back on entertainment or some other variable expense.
The last step in the budgeting process is to stick strictly to your budget. Review your expenses every month and try to increase or decrease the money allocated in different categories according to your needs. Sticking to the same budget every month may not work every time because the cost of goods and services is not 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’ll always be in control of your spending and in good financial health.
