Whenever the thought of budget comes to mind, like most people, you might think about cutting the cost of activities such as eating out. However, the reality is completely opposite. The purpose of a budget is to show you how much you earn and spend and how you can use your income effectively. Budget is one of the essential tools to ensure a secure financial future. Your budget may be for short-term usage or for long-term usage. You can create a monthly budget, bi-annual budget or annual budget for your household. The budget will help you make the most of your money and to avoid debts that could lead you to needing a debt consolidation service or worse, bankruptcy protection. Here is how you can create and manage a budget for a happy financial life.
1. Choose a Budget System
The first step is to pick a budget system. There are many tools which you can choose for your home budget such as:
A simple notebook and pencil
It is the manual method of budgeting. You list out all sources of your income and the expenses you plan to make.
Using spreadsheet software
One of the most popular means of creating a budget is the use of a spreadsheet such as Excel. You can also download monthly budget plans online for free, which is better than creating your own. You can delete the information which you do not require on that sheet.
Using financial software
You can download special budget software such as Microsoft Money or Quicken. You need to be an expert with computers to use these.
2. Create a budget
Follow these five steps to create a budget:
- Identify your financial goals.
- Calculate your income.
- Calculate all types of expenses you have which include fixed costs, variable committed expenses such as gas and groceries and discretionary expenses such as recreation, vacations and holiday trips.
- Enter the values in the spreadsheet or any other budget system you chose.
- The calculation will show if you have a steady income and expense or not.
3. Analyze how you spend and keep balance of your checkbook
People create home budgets to ensure their costs do not exceed their income. With the help of a budget, you can control your expenditures and change your spending habits. A budget allows you to monitor what you spend on a daily basis. You record everything on daily and if you see the expenses are increasing, you can cut costs.
4. Keep track of the original budget
You have to keep a record of the monthly budgets you create. Once you spend four or five months budgeting, you will be an expert in it. You can make adjustments to the original budget and create a budget which is well balanced and satisfies your needs. There might be a lot of expenses which you did not mention in the initial budget such as vehicle expenses or medical expenses. Now you can adjust the budget accordingly.
5. Maintain the budget
Don’t forget to maintain the budget. A budget will calculate how much you have saved in case the income was more than your expenses. If this is the case, maintain that budget system.