What is Budgeting? What is a budget?
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
Do you need a budget?
A budget allows you to create a plan for your money that will help you control and have enough money for the things you need and the things that are important to you. Keeping up with a budget or spending plan will also help you keep you out of debt or help you work your way out of debt if you have.
So do you need a budget? We leave the answer to you. Continue reading this post and learn how do it following some basic steps.
How to create a budget
Whether you’re looking to create a personal budget or just get a better approach to your money management, start with some necessary steps.
Even if you don’t use a budget plan, for sure you a way of determining where your money is spent. Creating a budget plan with a template will make you feel more in control of your finances and let you save money for your personal goals. Keep in mind that you have to figure out a way to keep track of your finances that works for you. By following the next steps can help you create a budget.
Note your income
The first step when creating a budget is to identify the amount of money you have as income. Please note that it’s easy to overestimate what you can afford if you think of your total salary as what you have to spend. Remember to subtract your deductions for Social Security, taxes, and flexible spending account allocations when creating a budget plan. Your final take-home pay is called net income, and that is the only number you should use when creating a budget plan.
Track your expenses
It’s helpful to keep track and categorize your expenses so you know where you can make adjustments. Doing so will help you identify where you are spending most of your money and where it might be easiest to make cuts.
Start by listing all your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities or car payments. It’s difficult to cut back on these, but knowing how much of your monthly income they take up it is very helpful.
The next thing to do is to list all your variable expenses, those that may change from month to month like groceries, gas and entertainment. These are expenses where you might find opportunities to make cuts. Credit card and bank statements are a good place to start since in many cases they categorize your monthly expenditures.
Set your goals
Before you start checking through the information you have tracked, make a list of all the financial goals you want to accomplish both in the short and in the long-term. Short-term goals should take no longer than a year to achieve. Long-term goals, such as saving for retirement or your child’s education, may take some years to reach. Remember, your goals don’t have to be set in stone, but identifying your priorities before you start planning a budget will help. Keep in mind that it may be easier to cut spending if you know your short-term goal is to reduce credit card debt.
Make a plan
Use the variable and fixed expenses you combined to get a view of what you’ll spend during the next months. With your fixed expenses, you are able to predict how much money you’ll have to budget for. Use your spending habits in the past as guidance when trying to predict your variable expenses.
You may choose to break down your expenses even more, between those things you need to have and those things you want to have. Thinking like this, if you drive to work every day, gasoline probably counts as a need. On the other side a monthly subscription to a music service, however, may count as a want. The difference between these two is very important when it’s time for decisions that drive to adjustments.
Adjust your habits if necessary
If you have done all this, you have what you need to create and complete your budget. When having documented your income and expenses, you can start to see where money is left over or where you can cut more so that you have money to put toward your goals and needs.
The expenses you want-to-have are the first thing to look for cutting expenses. Can you skip movie night in favor of a movie at home? Try changing the numbers you have tracked to see how much money frees up in your plan. If you have already changed your spending on wants, evaluate your expenses on needs. Simple like you may need internet at home, but do you need the fastest of them available? This could also save money.
If the numbers still aren’t coming up, you can look at adjusting and change your fixed expenses. By doing so it will be much more difficult and require greater discipline, but on close inspection a “need” may just be a “hard to part with.” Such decisions come with big changes, so make sure you carefully look through all your options.
Keep checking in
It’s important that you have a close look at your budget. Do not forget to do that on a regular basis so you can be sure that you are staying on track. If you want you can go furthermore if you try to compare your monthly expenses to those of people similar to you.
Finally, keep in mind that few parts of your budget are set in stone. If you get a raise, your expenses may increase. If you have reached your goal you may want to plan for a new one. But whatever is the reason, keep controlling your budget following the steps above.
Our free budget calculator based on income will help you see how your budget compares to your expenses. Click the button and calculate your budget now.
Create your budget with Rabio
Rabio is open-source software that was designed to manage and control budgets, their costs, and produce reports based on a flexible cost breakdown structure. It is a budgeting software and it is distributed for free.
You can easily use it for your personal needs or your business. Using Rabio ‘s managers system you can design and control your budget and compare it with costs at any time using the easy reporting internal system.
Furthermore, you can alter your budget or create forecast and projection managers and compare new data with the original budget.
You can check Rabio by viewing the demo which is available 24/7.
Rabio is open-source
You can download Rabio open-source version here