Budget Plan Basics

Everyone should have a budget plan. Even if you think that you’re set financially it is vital to know where your money is coming from and where it’s going. Now some people get a little intimidated because the thought of sitting down crunching the numbers can seem overwhelming.

The key to building a solid budget plan is to start with the basics such as a framework and the categories you will need to include. Breaking it down to it’s simplest can help you get there. Here are a few tips to get you started

Income

The first place to start in the outline of your budget plan is with your income. There will be some estimating here but make sure it’s estimation not dreaming. The income area of a budget is not the place to write down ideals.

Simply take a look at your net income over the last three months and estimate an average monthly income.

Or you might have income that changes very little month-to-month; it should therefore be pretty easy to figure out your monthly income.

It’s important to remember that when figuring out your income to avoid adding income that is not steady. That’s for taxes not a budget plan

Expenses

Your next category should be expenses. It’s good to include enough detail that you have a grasp on things, but splitting your expenses into dozens of little categories will probably only frustrate you. Try to make your categories reasonably broad.

For instance instead of putting movies, video games or going out to eat on a regular basis into separate categories group them all under entertainment. More than likely you will do a lot more estimating here than you will in regards to income.

As you break down your expenses into understandable categories and numbers, remember that charitable giving or any giving away of money should be also listed as an expenditure.

Actual Expenses

Estimation gives way to “real” numbers when you write down your actual expenses during the month. This is the last section of your budget plan. Keep a running tally of your expenses for several months, and then look at where you are.

A couple of other things to remember when it comes to your budgeting plan

1. Distinguish between wants and needs. This can be a hard one, but it’s vital for a budget plan to function properly. Beware of convincing yourself that a want is a need when it isn’t – you may just be trying to find an excuse to buy the item.

Real needs are things like clothes, food, and shelter; but designer clothes, gourmet food, and a palatial dwelling are more like wants!

2. Expenses should not exceed income. You may find yourself surprised the first time you do a budget plan and discover that you actually don’t make enough money to cover your expenses.

If you discover this, you need to look carefully at your income section and see where you can increase it, and look just as carefully at the expenses and see where you can make cuts.

These two areas are where people get themselves into trouble with their budget plan. A want becomes a set in stone need even though the income is not their to cover it.

Take for example going out to eat on a regular basis. People refuse to give it up therefore it becomes another expense straining their already limited income even further.

A good budget plan means stepping back from time to time and taking a hard honest look at what you can and need to do to become financially sound.

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