A budget gives financial discipline to an individual or organization. Learning how to budget money is vital because it helps you plan your assets, income, expenditure and investments and puts you on firm financial ground. A budget is therefore a financial plan that helps you track expenditure, exercise control over the money you earn and help you to have enough money when unexpected emergencies occur.
The first step making a budget is to know your finances. You should make a list of all your sources of income. Your income may be daily earnings of a self employed professional or a regular paycheck from an employer. Total all the income earned in a month. You should then calculate the average income that you have earned in the last 3 months. This average will form the basis of your expense 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 need to be paid every month. Examples of these expenses include rents, utility bills, insurance premiums, loan or mortgage payments.
You should then calculate variable expenses. Variable expenses are expenses that you cannot accurately anticipate. Examples of these expenses are groceries, gasoline, entertainment, hobbies and travel.
The next step in the process of how to budget money is to make a list of expense categories. You should make putting money in a savings account one of the categories. This savings amount should be deemed an investment rather than an expense.
You should first allocate funds from your income to pay off debts like mortgages and loans. You should then allocate funds to pay rents and utilities and other fixed sums like insurance premiums.
Your next step is to allocate funds for variable expenses like groceries, gasoline, entertainment, eating out and hobby expenses.
The next step in the process of how to budget money is to put the amount allocated as savings into a savings account. This should be the first payment from your income every month.
You should keep track of your variable expenses through the month and make sure that you do not exceed the amount allocated in your budget for groceries or gasoline. If you feel your grocery expenses are higher than what you anticipated, try cutting down on entertainment or some other variable expense.
The last step in the process of how to budget money is to stick to your budget strictly. Review your expenses every month and try to increase or decrease the money allotted 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 do not remain 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 will always be in control of your expenses and in sound financial health.