April 30, 2009

How to budget your finances?

What is a Budget?

Budget is an estimate, often itemized, of expected income and expenditure for a certain period. It is a calculated plan on how much money you earn and how much money you should spend. You should be aware of how much money you have coming in and where it goes, otherwise your road to financial stability may be a difficult one.

What is required to create it?

Budgeting finances needs an attitude. A positive mind can easily lead to a positive and efficacious outcome with the budget on your finances. It is very hard and challenging to manage your finances on a single income, when, especially you may have to switch from a double income. However, making a budget does not indicate that you need to be a miser while spending your money. It is all about managing the money you have in hand. First, you need to know on what sort of expenses you can afford to cut down.

How to create a budget?

Determining your income should be your first step in creating a budget. If you are married, then make sure your spouse’s income is also taken into account. You may also consider any other sources of your income, such as a part time business, interest from any bank-deposited money and the like. Once you are aware of how much income is coming to your family, you need to ascertain your expenses. Your expenses may be categorized into two parts, one being the essential expenses and the other being the non-essential expenses. Your essential expenses may not be adjusted or compromised. Fixed payments and expenditure/investments such as car payments, insurance, mortgage, or rent, taxes most possibly remain static and may not change with the flow of your income. List out these relatively fixed expenses and then take a deeper look at where the rest of your income is spent. You may find some non-essential expenses such as gifts, magazines, dining out, movies, etc, in your monthly expenditure, which you can go without. Differentiate your expense priorities and keep a record of this.

What may be the outcome?

Now you have the required information of your income and your expenses. Sum up your monthly expenditure and your monthly income. Then subtract your total expenses from your total income. The result may appear positive or negative. If the result is positive, it indicates you spend less then you earn. Congratulation!!. In case the number is negative, do not worry. The whole purpose to create a budget is to identity your additional, non-essential expenses and find out how to control them.

How can you analyze your budget?

Now you can see how much your expenses exceed your relatively fixed income, you can perfect and fine-tune your spending to a good effect. This will surely help you save some bucks as well. Make some small adjustments, if needed, in your expenses and you will be amazed to find out that you have actually improved your financial situation. Once your income increases, you can modify your expenses to your need too. Cultivate a habit to save some pennies and this will help you spend more as well. It really works. So, best of luck.
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