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Budgeting Basics

ArticleID 98  
Writer Isaac Thuku
Category Personal Article

A Budget is a proactive approach to spending where you have a quantitative expression of how to use your money over a certain period of time. It is an accounting tool together with financial statements and cash flow forecasts used as a program for spending. Budgeting is the process of creating a plan to spend your money. Budgeting involves making sure you are spending less than you are earning and planning for both the short and long-term goals. It is associated with depriving oneself needs and luxuries.

You can determine how much you earn per month by simply looking at your pay slip. That is not all, a budget is important for balancing your expenses with your income. Creating a budget is not that difficult, the hardest bit is sticking to it. For you to have a balanced budget, make sure you understand your expenses.

Expenses are generally classified into two. They can either be fixed or variable. Fixed expenses are those which stay the same every month while variable expenses keep on fluctuating every month. Fixed expenses include rent, business loans , debt, taxes and health insurance whereas variable expenses include groceries, clothing, dining out with friends and going for a holiday vacation.

Budgeting helps in making conscious decisions when spending money. With a budget one will likely not go on a spending spree or impulse buying. A budget will restrict your spending as you only need to buy whatever is on the list. Anything else not included in the list should be kept aside for another time. If you have a long term budget and it is not included in your list, wait till the next budget time and give it a priority.

A budget gives you control over your money. A well structured budget will allow you to prioritize important goals. You will start by clearing bills, purchasing adequate food for the whole month and paying for your children’s school fees. Less important goals like buying a car will come later, or if they are to be effected the same time, they come at the bottom of the list.

Having a budget will help you to save for the unexpected costs in life. It’s always good to save a portion of your money for emergencies. Accidents and sickness can occur untimely and leave you devastated and without a penny. With savings you can have a starting point and may be friends and family can help you from there.

A budget will give you signs of financial instability. It will show you where the fluctuation in spending is and how to solve it. You will have to limit your spending or run into credit problems. Following your budget strictly will help you in debt management.

A successful budget is vital in setting up standards of performance and strategic planning. You can’t plan without a budget. A budget identifies your income and lists your expenses making you to spend less than you earn therefore a chance to focus on your goals. Planning for the future starts with a budget. . To determine your savings you deduct monthly expenses from your monthly income.

Budgeting Basics, Money management, finance management, Book keeping, Entrepreneurship, Entrepreneur, Making money, running a business, Managing a business
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