Lots of people think that following a good budget plan implies being stingy and also constantly calculating and documenting lots of numbers. This is close to what a budget is but it does not completely define it. A budget is formed and developed with a strong financial foundation no matter the situation at hand. It will interest you to note that it is not a difficult process contrary to what many people think.
What is a budget?
A budget can be defined as an analysis or itemization and plan with regards to the amount of money coming in to your purse and where they are channeled into. No business can ever succeed if the income and expenses are not tracked. In the same way, to make success in personal finances, you should be able to track your income and expenditures. You need to know the exact place your money comes in from and where it all goes in order to achieve financial success else it will be difficult to achieve.
Most people are afraid that creating a budget will reduce or even halt the amount of fun they have. Without creating a budget, there is no way you can ascertain the expenditures you need to slash down and the ones you should leave.
Tracking your income
The determination of the amount of income you have is the number one step in creating a budget. To easily achieve this, you should simply take a look at your take home pay. Married folks also need to include their spouse’s income here. In case you have some other source of income besides your regular pay such as dividends, another business, interests and so forth, you should also include it here to track your income appropriately.
Tracking your expenses
Your monthly expenses are as much important as your income here. You should also take a look at the amount of money going out of your pocket. To track this effectively, you have to start with your fixed and regular payments. Such payments might include among many other things your mortgage or rent, insurance, car payments, taxes and debt. For some people, these expenses cannot be changed. In other words, they will need to make such expenses each month.
Having outlined your fixed or regular monthly expenditures, it is high time you went further into the other areas where your money goes into. To achieve this with ease, begin by taking a look at your checkbook or your current bank statement. You should also note down the amount of money you spend on facilities and features like entertainment, utilities, groceries, subscriptions and so forth. This way, you will be able to track all your expenses in a breeze.
After completing the above aforementioned processes, you should now have every piece of information required in creating your budget. You can then go on to sum up your monthly income and monthly expenses. Have the value obtained from your expenses deducted from that of your income and check whether what you obtain is negative or positive. If the result is positive, then you are earning more than what you spend but the reverse is the case if it is negative.
However, if you have negative result, it is time to work on your spending and saving. After all that is the essence of budgeting, to identify the aspect of your finances that needs to be worked on and also know how to work on them. A little adjustment in your saving and spending can result to a significant change in your budget.