The only way you can save money is by controlling the flows. Budget is the one of the most important way of doing it. At time people don’t understand where they are losing their money despite making a good amount.
Budgeting is considered extremely important by almost every business and they hire professional analysts who can forecast and cut down unnecessary costs of the company. A budget is basically a record of available resources made beforehand what your total expenditure is and at the end of the month the actual money spent could be compared to the budget to see where you’re losing your money.
Not restricted to business and financial institutions, a budget can also be created for personal usage to make you understand the value of money better. This way you can not only control your outflows but save money and plan for the long-term. This is the guide on how to prepare your first budget.
Calculating the Monthly Income
This is like a straightforward step if you are employed by any company and receive a steady amount of income every week. Then you can just total your monthly earning after tax and list them down. However, the case is not that simple for people who are self-employed or earn an uncertain income despite being employed, their income would vary and the best way to calculate monthly income is by taking an average. Calculate your annual income and divide it by 12, this will give you your average monthly income.
Essential Expenses
Sometimes you just can’t forego some expenses because they mean too much to you. Essential expenses are those expenses, they may not be necessities but they can be very important like Gym membership, Football lessons. Other than that, foo, rent and clothing also come in this category. You need to make a list of these expenses that you can’t delete.
Irregular Income
Sometimes you get money without really doing extra stuff. This includes annual bonuses, commissions or may be even royalties. They are a good addition to your life and should be tracked as they might help your journey.
Other Expenses
Your necessities are not your only expense, as you spend money on multiple occasions during the month. People spend much time eating out in restaurants which increases their budgets unnecessarily, people spend too much on entertainment and electronics as well thanks to the technological advances. These are some places where you can actually trim your expenses. Start eating at home more and going to the restaurants less making sure you don’t spend more than you earn.
The Process
You’ll probably only need a calculator and an excel spreadsheet after you have collected the necessary data. Add in your total expenses including Other Expenses and the Essential ones then subtract them from your total Income. If you are earning more than you spend you can save the money as savings, however, if you are spending more than you earn then try to cut your non-essential expenses and compare the actual money spent at the end of the month hopefully you’ll have a positive result.
This article was written by Betsi Johns. Betsi is a writer at popular magazine. She writes usually about personal finance and budgeting as well as about stock prediction.
