Budgeting may be the most unpopular word in the financial planning dictionary, and the most misunderstood. Done right, it’s a way to spend your money smartly and reach your financial and personal goals.
A budget is an essential money management tool. If you want to make sure that you’re spending within your means and make plan s for the future, you need a budget.
At its core, a budget is a system for estimating how much money you need to cover various itemized expenses during a particular period and matc he s your actual expenditures against the estimated amounts. A budget helps you see where your money goes every month which then lets you see how you can optimize your spending Are you maybe spending more than you need to go on a given area? How much money do you have left over at the end of each month? These are questions that a budget can help you answer!
A budget is personal and so is the budget creation process. There’s no single format that suits all circumstances, but every good budget has certain basic features that make it work. Your budget needs to be realistic, comprehensive, concise, and flexible. Similarly, there isn’t just one way to go about developing a budget, but there are a few general steps to follow:
Each month, enter your actual expenditures in each category. Be regular, systematic, and honest about your entries. Remember that the point of creating and using a budget is to help you achieve your goals! You won’t be setting yourself up for success if you aren’t accurately reporting your expenses. At the end of the month, total the amounts in each category and match them against your original estimates. At the end of the year, total the monthly amounts and see how they line up with your annual estimate.
As you tally expenditures and match them against your projections, you may notice areas where you are under or over spending. Midway through the year, review your budget categories and estimates and make necessary changes. At the end of the year, repeat this review and prepare a new 12 month budget with revised income and expense estimates.
Developing and using a budget is an exercise in defining your goals and your means of achieving those goals. This is a summary of some of the key things you need to know about creating and managing your personal budget. If you would like to discuss your budget management one of our advisors would be happy to help you.
Read up on articles, how to guides, budget forms, and many other resources to put you in the driver’s seat of your finances, both personal and business.