To have a certain level of financial security, it is essential for you to possess money management skills. And for this you should first learn budgeting. So, here is some help for preparation of a budget.
Whether you are a newbie in the business world or an industry hot shot, you cannot dare to overlook the significance of a budget. Being the most basic and effective tool for managing your finances, budgeting connotes what you need to do next. That’s not all!
There are many other benefits such as;
- It gives you control over your money.
- It assists you take a right decision in advance for how your money will work.
- It saves you from those expected and unexpected costs.
- It helps you stay focused on your money goals
- It creates awareness for what is going on with your finances.
- It let you organize your spending and savings.
- It gives you an early warning for potential problems.
And the list can be very long. So, it is pretty clear, budgeting is not an additional work.
Australian Research Council’s CEO, Aidan Byrne, tweeted- Budget is a proxy for project planning.
While projects can differ dramatically, these strategies to create a great budget remain the same. Hence, here is a step by step process for ideal budgeting;
Step 1: Target Your Financial Goals
You can classify these into two categories, i.e. immediate and long range.
Immediate goals: These include the tasks which focus on using your money today, or very soon.
Long-range goals: The areas which requires money investment in the long run falls into this category.
Both are significant, and complement each another. The money you save from your ‘immediate goals’ will affect what you spend in the later (for long –range goals). Hence, you need to determine which goals address necessities, and then you can prioritize.
Step 2: Evaluation of Income and Expenses
Once you have determined your goals, you need to lay out a plan to achieve them. For this, you will first have to calculate your income and expenses. You can try doing it on a monthly basis by enlisting your monthly income sources, including earning, taxes, payments and much more. In case, you don’t know the exact amount, using an estimated sum will work for you.
As these calculations can be bit tricky most of the time, it is advised to trust some automated tools for this purpose. One simple solution could be maintaining your pay stubs regularly. Even if you are running your own business, you can still generate a pay roll through check stub generators. Plus, you get them delivered in your email’s inbox, which means you don’t need to carry paper documents everywhere.
Step 3: Analyze Your Spending Timely
What if more money is going out than is coming in?
Things can be problematic. Thus, when you are into budgeting, it is essential to make sure that your expenses do not exceed your income. No, this never means you need to start penny-pinching. But yes, you must learn to make adjustments. To start with, you can follow these basics:
- Maintain records for your deposits and purchases.
- Keep your monthly bank statement saved for future use.
- Cross-check your deposits and withdrawals to ensure that your bank hasn’t taken any liberties with your money.
Step 4: Revisit Your Budget
Being living document, your budget demands some changes over the passage of time. Hence, it will be good to regularly review you budget. Once you have monitored your income and expenses, you will be quite aware of areas which need adjustment.
Now, you might be wondering what to consider?
Well, as far as the income side is concerned, when you get a raise or receive a windfall, changes would be required. It is worth noticing that sometimes the changes are smaller or temporary. In such a case, you don’t need to overhaul your entire budget. Make some minimal changes unless you get back on the track.
Definitely, there’s particular rule to review your budget. Few experts recommend doing it constantly, others would suggest gearing up for the same at interval of several months.
Step 5: Stay Committed
This is the last and most significant part of budgeting. While you have completed almost every aspect of planning toward a more financially sound future, it is vital for you to honestly commit and follow the same.
Lastly, creating a budget is the first step. Success comes along when you learn to maintain the budget. Sticking to a budget can be a daunting difficult task initially. However, it can be simplified by deciding on some spending boundaries and having self-discipline in finance. And not to forget, you need to maintain a positive attitude toward the process always.
Remember, everyone can benefit from taking this proactive approach to control finances. It is just a matter of commitment towards your budget. All the best!