A budget is a useful tool which helps you to control your money. Many people get themselves into trouble with overspending and debt because they do not understand where their money is going. With a budget, you get a clear picture of what you spend your money on. And you have the ability to take action if it is not working for you.
A budget is not about stopping your expenditure, but rather choosing what to spend your money on and ensuring that you have free money for the things that are essential. Since the contents included in the budget reflect the fabric of your daily existence, it gives you control over your life and your money. It also allows you to create a sensible framework on how to live your life.
The first important point is that your budget and your net worth are intertwined. How you set up your budget , has a huge impact on your overall future net worth. On the contrary, how you handle your debts and investments can have a big impact on your budget.
Advantages of A budget
Financial Freedom -It makes you decide in advance how to make your money work for you. You are able to see what is coming in, what is staying and what is going out. This enables you to have the will to make your money work for you.
Save - It enhances your savings. This is vital for your wealth to grow.
Control over your money - A budget provides a way of being intentional in the way you spend and save your money. With a budget, you have control over your money and not have your money controlling you.
If you would like to manage your personal finances, then a budget planner is the best tool to assist you. By using free monthly working budget worksheets, you are able to manage your finances to the extent of satisfying your family members needs and investing the extra for your future. These sheets are versatile, printable and easy to use.
When designing your budget planner, focus on the core categories which include your total net monthly income on one side and your total monthly expenses on the otherside, which wll include the following.
The household expenses should cover rent or mortgage, taxes, payments, household utilities and repair..
The automotive expenses will include petrol expenses, auto insurance, repair and maintenance.
The miscellaneous expenses could include clothing, entertainment, travel and life insurance.
Make your budget enjoyable
Budgeting does not need to be the worst thing in this world. Instead of avoiding it, embrace it and make it something you enjoy.
Here is a few ways to make your budgeting a little fun;
Set goals and rewards - If you are not measuring your failures and successes, then why do it? Set goals for the amount you want to spend and save for the month. Then set a reward when you hit your target.
Leisure Fund – A budget does not have to be so restrictive. You can create a leisure fund where you decide on a specific amount of money for you to spend on anything you want. If you do not spend the money in the leisure fund during one month, it can be carried forward and you can buy something better the following month.
Keep your budget on spreadsheets
No one enjoys doing business the old way. Make use of tools such as Microsoft Excel or Google Spreadsheets and get something on your computer or phone that helps you track your money. Keep a copy of your receipts and enter them into your budget on the go.
Flexible and Realistic Budgeting
Flexible budgeting takes into account the different varying costs and revenues throughout the month. This allows you to create a budget which reflects these variations. In the past, budgets were based on average and the figures were uniform throughout. However, this budget is not realistic.
A realistic budget changes with time, not all months are the same as your circumstances change. For your budget to make sense and be easy to follow through, it should be realistic and flexible.
Realistic in a way that there are no important needs and wants that have been eliminated and flexible to accommodate changes in prices, emergencies and so on. Flexibility also ensures that you can make adjustments along the way, whether in the expenditure or in your savings.
Work out the amount of money you can comfortably put away each month into an automatic payment transfer. This should be an account that you do not have an easy access to.
We all know the saying that goes, failure to plan is planning to fail. So this personal budget is just a simple plan on how to spend and save your money. With a good budget that ensures savings, you are only creating a path to your financial freedom.
Calculating Your surplus
Your surplus income is the money you have left when you have calculated all your expenses mentioned above.
Simply put this is your total monthly income minus your total monthly expenses.
Income – To calculate your total monthly income, add together all the money you receive from all your income streams each month. This includes your wages, child benefit payments, pension payments, tax credits, income from your businesses and so on.
If you receive your income on a weekly basis, multiply the figure by 52 weeks then divide by 12 to get your monthly income.
If you are paid overtime or commissions on an irregular basis, you can use the average for the last few years to work out the annual average, which you should then divide by 12 to get a monthly average or create your own flexible budget that accounts for these variables.
Expenses – To calculate your budget for monthly living expenses, add up all the essential living expenses you incur each month. These includes things like food and groceries shopping, rent, mortgage, utility bills, council tax, car petrol, car running expenses, public transport, child minding costs, luxury expenses such as eating out, and so on.
If you pay any expenses on a weekly basis, take the figure and multiply by 52 then divide by 12 to get a monthly figure. Remember not to include payments to unsecured creditors such as store cards, credit cards, and personal loans in your living budget. These things should be paid off using your surplus income.
Your surplus in the result of the equation or deducting your expenses from your income to get a figure you have left over each month. What you do with this money could effect your entire future. The next step is to manage your debts. Use your surplus income to remove your debts. Paying them off as fast as possible, should be your first priority.
Coming Up next: Let’s get rid of bad and harmful debt.