A budget is basically a money plan that helps you to execute and reach your financial goals overall. A great budget helps you to do a number of things. They help you to establish and regulate your funds, set and achieve your short and long-term financial objectives and also helps you to make advance spending decisions. Budgets also show you what areas to cut back on or eliminate all together to help you save more money for other goals and objectives. One of the main reasons for budgeting is so that you can have a hedge against unforeseen financial or catastrophic emergencies. Budgets also help you to keep abreast of where your money is going. Simply put, a budget is an income estimate and spending plan based on your monthly home expenses and financial liabilities. The first step to take when budgeting is to define what your fixed expenses are. Your fixed expenses are those things that you make payments on every month like automobile payments, mortgage payments, life insurance, and etc. Likewise, you must review your expenditures thoroughly over a few months to figure out what you spend your money on and cut out unnecessary expenditures. Through proper review of your monthly expenses you will be able to determine your spending patterns so that you can curb bad spending habits.
Let’s assume you have a steady monthly income of $4,000. You should subtract all your routine monthly bills first. Then, subtract your other bills from the amount of your income. Set up your budget with the remaining balance. Instead of blindly allocating money to specific categories, start setting percentages for each category and adjust them based on a three month trial basis. It may be very sobering to find that you spend 2% of your income on your daily caffeine intake. This knowledge alone might make you start bringing a thermos or avoid buying your soda from vending machines.
Here are tips on how to budget: Have good money management sense. A mature attitude is highly essential. Reach an agreement, compromise and know the financial payoff of reducing your expenditures. Understand that you won’t make any headway if you do not make some small sacrifices here and there. Review your financial situation. Take your notebook and write a “T” down the middle, (This method is courtesy of Ben Franklin). Make a listing with the pros of your earnings on the left side and the cons of your overheads to the right. If there is a deficit, determine what you are going to need to do to cut out the fat and increase your cash flow. Make sure everyone in the family understands the difference between luxuries and necessities.