A budget grants financial discipline to an individual or organization. Learning how to budget money is vital because it helps you plan your assets, income, expenses, and investments and puts you on a firm financial footing. Therefore, a budget is a financial plan that helps you keep track of expenses, control the money you earn, and helps you have enough money when unexpected emergencies occur.
The first step in budgeting is knowing your finances. You should make a list of all your sources of income. Your income can be the daily earnings of a self-employed professional or a regular paycheck from an employer. Add up all the income earned in a month. Then you need to calculate the average income you have earned in the last 3 months. This average will form the basis of your spending budget.
The next step in the process of how to budget money is to make a list of fixed expenses. Fixed expenses are expenses that must be paid every month. Examples of these expenses include rent, utility bills, insurance premiums, loan or mortgage payments.
Then you need to calculate the variable expenses. Variable expenses are expenses that you cannot accurately anticipate. Examples of these expenses are groceries, gas, entertainment, hobbies, and travel.
The next step in the process of budgeting money is to make a list of expense categories. You should make putting money in a savings account one of the categories. This amount of savings should be considered an investment rather than an expense.
You must first allocate funds from your income to pay off debts such as mortgages and loans. Then you must allocate funds to pay for rent and utilities and other fixed amounts, such as insurance premiums.
The next step is to allocate funds for variable expenses such as food, gas, entertainment, meals away from home, and hobby expenses.
The next step in the process of budgeting money is to put the amount allocated as savings in a savings account. This should be the first monthly payment of your income.
You should keep track of your variable expenses throughout the month and make sure you don’t exceed the amount allotted in your budget for food or gas. If you feel like your grocery expenses are higher than you anticipated, try cutting back on entertainment or some other variable expense.
The last step in the process of budgeting money is sticking strictly to your budget. Review your expenses monthly and try to increase or decrease the money allocated in different categories according to your needs. Sticking to the same budget every month may not work all the time because the cost of goods and services is not the same.
Financial success is the result of careful financial management. Financial management requires careful planning and this financial plan is called a budget. Once you know how to budget money, you are always in control of your spending and in good financial health.