Budgeting gives 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 solid financial footing. A budget then is a financial plan that helps you keep track of expenses, control the money you earn and help you get 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 could be the daily earnings of a self-employed professional or a regular salary from your employer. The sum of all income earned in a month. You should then calculate the average income you have earned in the past three months. This average will form the basis of your expense budget.
The next step in the process of how to budget is to prepare a list of fixed expenses. Fixed expenses are the expenses that must be paid each month. Examples of such expenses are rents, utility bills, insurance premiums, and insurances or mortgage payments.
You must then calculate the variable expenses. Variable expenses are expenses that you cannot predict accurately. Examples of such expenses include 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 amount of savings should be considered an investment, not an expense.
You must first set aside money from your income to pay off debts such as mortgages and insurances. You must then set aside the money to pay rent, utilities, and other fixed amounts such as insurance premiums.
Your next step is to set aside money for variable expenses such as groceries, gasoline, entertainment, dining out, and hobby expenses.
The next step in the process of how to budget money is to put the amount earmarked as savings into a savings account. This should be the first payment of your income each month.
You should keep track of your variable expenses during the month and ensure that you do not exceed the amount in your budget for groceries or gasoline. If you feel that your grocery expenses are higher than you expected, try reducing entertainment or some other variable expense.
The final step in the process of how to budget money is to stick to your budget accurately. Review your expenses each month and try to increase or decrease the funds 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 don’t stay 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, you will always be in control of your expenses and in sound financial health.