One of the trickiest issues in personal finance is budgeting. Making a budget work for you can be very challenging. However, remember that a budget is not a getaway to financial freedom. You can get eliminate debts and achieve financial independence without a budget, but it can be much easier in many situations to use a budget. Remember that budgets can also fail.
Calculate Your Expenditure
Finding out how much you spend each month should be the first thing. Look at your bank statements, financial files and even receipts for this. Recurrent expenditure such as insurance payments will give an accurate picture when calculating an average for six months to one year.
Sum up the total and then divide by the number of months, from which you will get the average monthly expenses.
Remember that being thorough when you add up expenses is important in creating a realistic budget. A forgotten bill really throws a wrench into your savings plan. When calculating your expenses, also factor in unexpected bills, such as unplanned car repairs. The thumb rule is to have an extra 10 percent to 15 percent.
Determine What You Earn
With whatever you need for a month in mind, you can determine what you actually earn. Other than your regular salary, get an accurate picture by adding any extra income that you may get throughout the year. They could be in terms of sale of items, cash gifts or even a side job.
Other ways of earning include interest, dividends, rental income, child support, and alimony. Knowing what you earn will guide you in making decisions on how and what to spend on.
Have Saving and Debt Paying Off Goals
Determining realistic savings and debt payoff goals requires you to know if you have a budget shortfall or you are on average. Calculate this by taking way your expenses for a month from what you earn per month. Be grateful if the results indicate that you are spending way less than what you are earning. The surplus amount can be earmarked for savings and to pay off debt.
However, if the results indicate that you are spending more than bringing in then you should be worried. It is time to cut back on spending. You can do this by tracking your spending and recording all expenses incurred for a month. Insignificant items should be left out because they may seem little yet accumulate over time.
With a clear picture of your spending schedule, do not hesitate to cut back on expenses until your budget is manageable. Do it so that you have approximately 10 percent to 20 percent of your earnings as surplus each month to add to your account for emergencies. If you cannot raise a sufficient amount from your budget, you can find other ways of increasing your income.
Have a record for spending and keep track of records
The best way to stay on top of your budget is to record all of your expenses and income. Having to input expenses will cause you to think twice before splurging, and it’s especially satisfying and motivating to record when you’ve met a savings goal.
Be Practical With Your Budget
Always try to stick to your budget, and you’re bound to reach your financial goals. It is almost impossible to stick to a budget one hundred percent. You can break it once in a while, provided you get right back on track as soon as possible.
A budget should not be a financial prison and are not simply lines on a spreadsheet. Budgets are financial tools that should not make you feel guilty. Instead, they’re real glimpses of your life and how you can make a better choice here to make real improvements. The budget helps you make better and solid financial decisions. They nudge you, and with the time you will see that creating realistic budgets becomes automatic and your savings will be timely and more.
You may have tried sticking to your budget without success. However since you started following your budget, you will enjoy the benefits that come with budgeting. The success of a budget is when you notice you are getting lower energy or cable bills, not just having numbers on a spreadsheet.