Creating a monthly financial plan may not be considered as an exciting thing to do, but it is in fact one of the most important plans that one will draw up. Learning how to create a budget is easy and once mastered it will help one deal with all those financial curve balls. Budgets allow one to have control over what is being spent and how money received is being managed.
Firstly, start by getting all of ones financial paperwork gathered up. This will be documents such as, bank and investment statements, utility bills for the previous month as well as any other items that one may have to show income and expense amounts for the month. This step is mainly to ascertain what, on average one spends in a month.
All money received will be written down as income regardless of how much it may be or where it comes from. Self employed individuals will have to record two separate budgets; one for their business and one for personal use, but they should record what amount was taken as a salary. People that receive regular amounts should only use their net salary as the amount received; all income is then added in order to get the total earnings.
On completion of this step one then moves on to the total monthly expenses. Here one will write a list of all the items that they intend spending their income on during the month. The list should be comprised of all debt for example, mortgage, rent, car payments, utilities, savings and groceries etc.
Expenses should then be broken down into fixed and variable categories. Fixed expenditure is things that are more or less the same amount each month such as rent/ mortgage, cable, internet, car and credit card payments etc. These items are not likely to change but form the most important part of any planning.
Variables are all the items that form part of the list but vary in costs, like gas, groceries, entertainment, these are usually put down as amounts that one would like to have available and are rough estimates. These expenses form the adjustable part of the budgeting process.
Finally all the expenses are subtracted from the income and this will indicate if there are any funds leftover. If one finds there are extra funds then it gives leeway to either pay debt off quicker or put more into savings. However, if the opposite is true, then revert back to that adjustable section, which is namely, the variable expenses portion and then try and eliminate some costs there.
At the end of each month it is important to review these lists to see what one spent and if it was according to the recorded plan. This is an important step so that one can compare the two and assess the full financial situation. Children are never too young to start learning how to create a budget and every parent should ensure that they are taught these skills so it becomes a natural way of life for them.
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