The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Budgeting to Save and Spend Money
Spending and saving money with accordance of planning is known as Budgeting. This advance planning helps you to forecast either your expenses are balanced with your income or not. This will also help you to control your exceed expenses and helps you to maintain balance between both of them. If you are not able to get what you want then you need to prioritize your spending and try to achieve those things which are more important to you.
After knowing the exact meaning of budgeting, the question arises how to create a budget? To create a budget several steps are involved.
- Knowing your goals
- Source of money
- Money spent
- Sum up all
- Make adjustments (if required)
Let us discuss all steps one by one:
Step 1 – Knowing your goals
The most important step is to know your goals which you need to achieve. Either you need to buy a car, make investment, or go on vacation. One should follow SMART approach. SMART means Specific, Measurable, Achievable, Relevant and Time- framed.
Specific – The goal which needs to achieve should be straight and specific. One should know what the goal is.
Measurable – One should know how much money is required to achieve the goal.
Achievable – One should also know that either the goal which we desire for can be achieved or not, according to our income.
Relevant – The goal you want to achieve should be relevant and important to you. If it’s not then there is no means of achieving that.
Time-framed – It should be clear that the goal which is defined can be achieved within how much time period.
Step 2 – Source of Money
For creating a budget, an individual should know his/her source of income. For this purpose one should list down the sources of income and the amount coming from each source. If an individual is a student and has any non-recurring expenses i.e. One time expense like semester fees, purchasing of books etc, then the total income will be calculated by subtracting those non-recurring expenses.
Step 3 – Money Spent
One should always be aware of the monthly income and expenses of him/herself. If you do not check your monthly bank statement then how could you able to control your expenses exceeding your income? Before managing your budget, you have to know where you are spending your all money. Make it your habit to record your expenses on monthly basis, so that it will be easy for you to overcome your flaws. The best way is to categorize your expenses in various categories, such as:
Constant Needs – these are necessary and one cannot survive without them.
Variable Needs – Those expenses that may keep on changing every month.
Wants or luxuries – Unnecessary or additional things which are counted as luxuries and one can survive without them.
If an individual takes his/her monthly saving as an expense, then it will become easier to save huge amount every month and in case of any uncertain or unpredictable expense, one can spend the amount from those savings without going into debt.
Step 4 – Sum up All
All the expenses should be summed up and compared with the income. This comparison will show whether there is a surplus or a deficit. If the difference between your income and expenses is positive then congratulations! It’s a surplus; you have an option to invest in future. On the other hand, if the difference between the two is negative then it’s a deficit and you require Step 5- to make adjustments in your expenses
Step 5 – Make Adjustments (if required)
When you have a deficit, while adding up your expenses, you should consider the unusual large amount of expenses occurred during the month. You should cut down your extra or unnecessary expenses to keep your budget under control. You cannot trim your constant expenses as they are necessary and one cannot survive without these things but we can control variable expenses to maintain our budget and can completely cut down or luxuries in order to stay within our budget.
About the Authur
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