A budget consists of a financial plan regarding projected expenses and revenues. The main purpose of budgeting is organizing the spending habits of an individual, business or organization. A budgeting plan typically provides a forecast of financial revenues and expenses, an estimation of projected spending habits and the amount of money spent on a particular item or project.
To start creating a budget, you should assess your financial situation by asking yourself a few questions. Are you spending a lot of money every month, but don’t know where the money’s going? Or do you think you’re spending too little on bills? A budget helps answers all of those questions and mor—especially if you need to cut back on your expenses.
Starting a budgeting plan generally involves:
- Compiling financial statements: This includes bank statements, utility bills and other financial related documents recording the exchange of funds. The more information you have about your financial situation, the better budgeting plan you’ll be able to develop.
- Tracking your source of income: You can use budgeting software, regular word processing software or a pen and paper to make a record of your income sources. This also includes making a list of monthly expenses. Tracking your income sources comes in handy, especially if you have a home business.
- Organize your expenses: Organizing or sorting out your expenses falls under tracking your sources of income—but it’s important enough to emphasize. There are two types of expenses: variable expenses and fixed expenses. Fixed expenses stay “fixed” or close to the same amount you pay each month; many fixed expenses come in the form of monthly bills. Variable expenses change from each month; these expenses include monthly food bills, gas funds and various forms of entertainment.
- Tracking Liquidity: Believe it or not, budgeting isn’t all about tracking saving and spending. It’s also important to know how liquid your assets are as well. In the long term you may need cash available for a down payment on a house. In the medium term you may want to purchase a reliable automobile as opposed to a vehicle loan. In the short term you may need to write a check out for a wedding present. Or you may find yourself quite short in available cash, in which case there quick loans available to consumers as well.
Have you ever written down or drafted a budget for your monthly spending expenses? If you haven’t, maybe you should start making one. For one, a good budgeting plan will help you track where your expenses go each month. Many people forgo budgeting because they think they don’t need to budget, however budgeting in this day and age is more necessary than they think.