How To Setup Your First Financial Budget
Financial management is a crucial task in the modern world. Everyone must make sure they understand the basic principles inherent in managing money properly. Part of this understanding begins with setting up a budget. A budget is an excellent way to maintain fiscal control and avoid needless overspending. Budgets allow you to see how much money you are earning in any given time frame. They also allow you to understand your daily, weekly and monthly expenses over time. When setting up a budget, for the first time, you should begin with a few standard steps.
How Much Money You Have
The first thing to do is see how much money you bring in. All forms of income should be included. This should also include any other funds you have coming into the household that can be used immediately such as a partner’s income and any money from capital gains.
Make a List of Expenses:
After all funds are counted, you should turn your attention to expenses – or money that is leaving the household. Expenses can be divided in many ways. Oftentimes people find it useful to divide up expenses into money used for necessities and money that is used for luxuries. Necessities should include specifics such as commuting costs, food, funds needed for medical insurance and rent. Luxuries can include everything from an annual vacation to presents for people at Christmas.
Start by Keeping a Diary:
A spending diary can help you determine exactly how much you are spending each day. List every single expense from a cup of coffee in the morning to the money you spend at the movies. It’s a good idea to allow about a month to make this determination. At the end of the month, you can see exactly where your money is going.
Once it’s clear how much money is coming in and how much is going out, the process of setting up a working budget can begin. You should decide what you can spend money on and figure out what you need to cut. A monthly budget should also allow roughly a five to ten percent leeway. This way, there’s enough money on hand in the event of an unexpected emergency.
Setting up a budget is the first step on the road to financial independence. It is of great importance that you know how much money you have coming in and where your money is going every month.