Congratulations - you now have a Budget

So How Does One Create a Budget?

Many of us may actually believe that we know how to budget. Yes, possibly many have created a budget before today, and yet still remained short before month end? Why is that?

-       Most people do not actually know how to budget

-       Most budget for money (income) that actually doesn’t belong to them

-       Most people write down the budget but do not actually teach themselves the principles of sticking to a budget

-       Some, even as they see that they are now spending outside of their budget, believe in miracles that do not then happen.

In one sentence – MOST PEOPLE ARE VERY IRRESPONSIBLE WHEN IT COMES TO THEIR SPENDING.  

A Budget

As already said, a budget is a plan for future income and expenditures that you can use as a guideline for spending and for investing. Although many people already use a budget to plan their spending, the majority of individuals also routinely spend more than they can afford.

The key to spending within your means is to

      -       Identify all your needs

-       Rate them according to priority

-       When you start spending, track all your expenses; and the always work toward

-       Spending less than you make.

A good monthly budget can help ensure you pay your bills on time, have funds to cover unexpected emergencies, and reach your financial goals. Most of the information you need is already at your fingertips. To create or rework your budget, follow the simple steps outlined below to get a clear picture of your monthly finances.

Record your Income – rate it accordingly

To set a monthly budget, you first need to determine how much income you have, making sure to include all sources of income such as salaries, interest, pension and any other income–including a side business, or a spouse's income if you're married (that is if you have the kind of spouse who religiously does give you a steady allowance that you can count on).

If you get a salary, be sure to use your net rather than your gross pay. Taxes are usually taken out automatically, but if they're not, remember to include them as another expense. If you receive money from somewhere not listed, enter the source along with the amount under "other income."

Record all track your expenses

Now that you know how much income you have coming in, it’s time to take a look at your spend (your expenses). The best way to do this is to keep track of how much you spend each month. If you are starting fresh, estimate your spend for the last 3 months and identify sequence. Which are typically similar and regular, those that come every month? This line of expenses we normally refer to as fixed expenses.

Fixed expenses

These are the type of expenses that generally do not change from month to month, such as

-       rent, mortgages, car payments, maid and garden boy and insurance payments.

Flexible expenses

After you’ve listed your fixed monthly expenses, it is time to dig deeper to find out where the rest of your money goes. Take out your checkbook or pull your latest bank statement, or your credit card statement to help you with this step. Jot down how much you spend on these. These expenses are those that do change from month to month, such as

-       groceries, utilities, fuel, entertainment, which may include your phone bills (fixed and mobile, as well as data).

If some of your expenses for one or more categories change significantly each month, take a three-month average for your total.

The Bottom Line

You should now have all of the information needed to help you create your budget.

Go ahead and total up your monthly income and all of your monthly expenses. Subtract your expense total from your income total and you will either have a positive or negative number. If you have a positive number, congratulations, you are spending less than you earn. How many of you get a positive number? Don’t worry if you have a negative number. The whole reason for creating a budget is to identify deficiencies and find out how to address them.

Now that you can visually see how much you fall short, you can then adjust your spending or saving in certain areas to improve the situation. Oftentimes you’ll realize that by just making a few small adjustments to your spending habits, you can significantly improve your situation.

Maybe this means cutting back on one of your date nights, eating out one time less a month, or even just hitting the couch instead of that movie you meant to go watch at gables. Typically, just saving a few emalangeni here and there can be enough to not only make sure you spend less than you earn, but also apply a few extra to things like high-interest credit card debt or your Investment!

Well done. You have created a budget.