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A budget is the financial plan of an individual over a particular period based on the amount of money he will receive and the expenses that he will incur during that time. The importance of drawing a budget for personal expenses cannot be overemphasized. It helps to avoid debt, and even if you are already indebted, it is a roadmap on how to get out of debt. It also allows one to know how best to spend his money and to make sure he does not run out of cash at any point in time.
There are necessary steps to follow that will enable you to set up a budget for your expenses.
They are as follows
Calculate your income
First and foremost, calculate your income so that you know the actual amount of money you receive before planning for the expenses so that you don’t end up spending more than your earnings. Your income does not only consist of your basic salary. However, that makes up the majority of the income, but you also have to add extra funds that come from cash gift, child supports, rentals income, dividend, and even money won from from playing online lotto, to make such all money was accounted for. When you add all other incomes that are not earned through hard work, you are taking advantage of free money.
Knowing your expenditures
It is a well-known axiom that a man who fails to plan plans to fail. It is best to know the amount of money you are willing to spend during the time stated in your financial plan. There are two kinds of expenses. They are:
Fixed expenses are recurrent expenditure, for example, insurance payment, mortgage or rent, subscription for internet service etc. With this kind of costs, you can forecast the amount of money you will be spending for the time stated in your financial plan by checking your bank statements, receipts and financial files.
Variable expenses are the type of expenditures that changes from time to time, some examples are the buying if gasoline, money spent on a family dinner, money side aside to play lottery online, groceries, buying of gift etc. This is the type of expenses considered when making adjustments on your budget. For example, the amount of money you decide to put aside to play lottery online may vary depending on the type of lottery. For instance the mega millions ticket cost $2 per ticket while the powerplay optional cost $3. Most importantly, allowance for unexpected expenses like car repair should not be left out of consideration so that you won’t be thrown off balance. It is advisable to add 15% on the amount of money you originally planned to spend to take care of this unforeseen expenses.
Set savings goals
The main reason for setting up a budget for personal expenses is to make sure you are not in debt at the end of a particular period. There is no better way to accomplish that than to have a savings plan. Savings is the amount of money remaining after the subtraction of expenses from income. If there is no money left after the subtraction, it means that you have to reduce your costs by cutting off some of the unnecessary things. Savings are very important, especially when we encounter unplanned events. For instance, in this pandemic period, most persons have to rely on their savings during the shutdown.
Recording of your expenses
It is not enough that you have planned. You should also record all your expenses so that you can know what you spent your money on during a particular time. It enables you to be aware of your spending’s, and you can immediately forsake the things you don’t need.
It is not an easy task to stick to your budget at all times because you are a human being and not a robot, but the secret is always to get back on track anytime you find out that you have fallen short of your expectation.