Budgeting – Definition and Benefits
Budgeting is a way to manage money. It helps you get a clear view of how much money you have and how much money you spend.
If you have more than one person working in a household, then you are going to love this! You can even do this with kids who want pocket money.
People implement this for various reasons: some do it to stay within a certain income range while others do it to build wealth.
The good news is that you can use a budget for both purposes, all you need to figure out is where your money goes and why. It also allows you to decide where your money will go by foreseeing your income or purchases in the future.
Let us see how to make a budget plan:
- Make a note of your monthly income:
- What kind of monthly earnings can you expect? Using the net income (or take-home pay) amount is OK if your income is in the form of a regular paycheck where taxes are routinely deducted. Include outside sources of income if you are self-employed or have them, such as child support or Social Security. Assign a monthly amount to this total revenue.
- List down your expenses:
- Make a list of all the expenses you intend to incur over the course of a month. This list could include the following items:Rent or mortgage payments
Payments for automobiles
Insurance is a type of protection.
Personal care and entertainment
Childcare when eating out
Costs of transportation
Student loans for travel
To track your expenditure, go through your bank statements, receipts, and credit card statements from the previous three months. Categorize the necessary and avoidable expenses.
How to Make the Most of Your Budget
You must monitor and continue to track your expenditure in each category after you have set up your budget, ideally every day of the month. The same spreadsheet or tool that you used to create your budget can also be used to keep track of your expenses and revenue.