Budgeting is the process of creating a spending plan of your money for monthly and annual expenses. Use this budgeting process to prioritize your spending and focus your money on the things that are most important for you and your family. By creating a budget or spending plan you try to determine in advance if you have enough money to do the things you need to do and would like to do.
One does not need to be rich to do budgeting. Budgeting is simply balancing your expenses with your income. If your income and expenses don’t balance – it means you are spending more than you make, soon enough you will have a debt problem. Many people don’t realize that they spend more than they earn and slowly keep sinking deeper into debt every year.
Budgeting should be done by everyone. By everyone, we mean all people of all age groups – as young adults, just married couple, a family with kids, and even retired people. If you have never done budgeting, you can start doing it now. It is a good habit, however late you may be in starting off. And you will always end up being better off by doing budgeting rather than by never calculating your expenses.
Budgeting helps you in following ways –
1. It helps in prioritizing need based expenses over your wants.
2. You understand your total monthly and annual expenses better after budgeting.
3. It is an effective tool to ensure you do not overspend.
4. It helps you save more to meet your future goals.
5. It helps you find a way out of debt if you are currently in debt.
Most difficult part is getting started and creating your first budget. In order to create your first budget, you need to do these simple steps -
1. Classify your expenses for last six months under various headers like utility bills,groceries,school fee, medical and so on.
2. Group them under two heads - fixed and variable expenses.
3. Classify fixed expenses further as monthly or one-time.
4. Similarly classify variable expenses further as monthly or one-time.
5. Sum all your monthly expenses both fixed and variable. This number is your total monthly expense.
6. Similarly sum your one-time expenses. This number is your additional expenses apart from monthly expense.
Try to stick to the monthly budget you just created. If you find you are not able to stick to your budget, it may mean you are spending beyond your means or that your budget is not flexible enough. Take time to review and readjust your budget monthly until you find one that works for you. It may take you sometime to fine tune your monthly budget.
Once you have created your first budget, you may want to map out your spending plan or budget for 6 months to a year down the road. By doing this you can easily forecast which months your finances may be tight and which ones you’ll have extra money. You can then look for ways to even out the highs and lows in your finances so that things can be more manageable and pleasant.
Extending your budget out into the future also allows you to forecast how much money you will be able to save for important things like higher education of your children or your retirement. Using a realistic budget to forecast your spending for the year can really help you with your long term financial planning.
Hopefully this article will help you build better understanding of Budgeting and its importance as part of money management. And will help you have a more detailed conversation with your financial planner or investment advisor. For more information please feel free to reach out to us via email at – enquiry@taptoprosperity.com or by phone – 91-9515475381.
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