A budget helps you to keep track of how much you spend each month and is essential to your financial health.
Why Is Budgeting Important?
Every financial choice you make should be done in consideration of your budget. You need to know how much money comes into your household and how much leaves your household each month. Budgeting will help you determine how much you can spend on certain products and activities.
It will also help you to plan and save for special occasions like your next holiday and prevents you from overspending on unnecessary expenses.
A well-thought-out budget will also help you to see the bigger picture regarding your financial health and will aid you in achieving those goals you’ve set for yourself.
How Do You Draw Up A Budget?
The first step in drawing up a budget is to make a list of all your income and secondly a list of your expenses.
Your income incomes include your monthly salary, allowances, commission, rent, freelance income, dividends, grants and so forth.
Expenses include your fixed and variable expenses. Fixed expenses include items such as rent or a home loan, insurance premiums, subscriptions, loans and health insurance. Variable expenses are expenses where the amount is not constant and this include groceries, fuel costs, utility bills, entertainment, transport, and clothing. You also need to list irregular expenses such as car maintenance and home repairs. Also, include items in your budget for which you want to save.
Try and establish your average monthly spend by adding together all of your cost estimates and compare it with your incomes to determine if you have enough money to pay all your expenses and whether there will be any money left over after you have paid all your expenses.
Track your spending for a month to make sure you know where your money is going so that you can get a clear picture of where you’re overspending and can cut costs.
What Do I Do Next?
If your expenses are more than your earnings you will need to immediately make some changes to prevent you from falling further into debt. You can list your expenses in order of importance and cut back on the least important expenses such as clothing.
If you have money left after paying your expenses it is recommended to immediately start servicing your debt. Once you are debt free you can establish an emergency fund so that you can start saving for those unexpected expenses or luxury items that you simply must have.
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