It’s time to start working on your personal finances. Take control of revenues, plan and monitor expenses, create a financial cushion. First step. Use the basic tool to manage your personal money. That’s the home budget, basic tool. Thanks to it, you will be able to successfuly face your financial difficulties. This will be a first step towards the goal of financial stability and maybe financial freedom. You are reading this article. It means that you don’t use the budget or use it not enough effectively. Thus, you take a risk of losing your own money, uncontrolled expenses, you probably don’t accumulate savings.
So let’s get to work
What is the budget? Contrary to popular belief, this is not a table to calculation of expenses compared with cash inflows. It is a tool that comprehensively approaches to management of your own money. What examples of real goals will you achieve with your budget?
- You will find out what your biggest unplanned expenses are.
- How much money you spend on food, clothes etc. monthly and yearly.
- You will control your own cash flow.
- When you collect money, when you will be able to buy a car with your own cash.
- How can you finance your children’s school.
What happens when you don’t use a budget a basic tool. This is the opposite site of right activity. If you do not use budget, it is more than certain that:
- You don’t know how much money you spend on different kind of things. I will explain. If you don’t know how much money you spend, you will have no control over expences,
- You may lose liquidity what means, that you will have no money for current expenses or loan payments,
- You move away from your own goals, not only financial ones
What is the budget?
Summarize, without a budget, you spend money easy and pleasant, usually, unfortunately without sense.
What is the difference between a budget and a simple summary of revenues and expenses? The budget has its own plan. This famous word appears again. On the one hand, you plan expenses and receipts, on the other, you implement a budget plan. The budget as a tool will tell you, how you make expenses, whether you exceed them or not. You achive a surplus, or deficit.
Summing up the concept of budget again, it is a plan and implementation of the inflows and expenses of your money. Why people, even companies, don’t use budgets. There are some reasons:
- ignorance of the existence of such a tool
- aversion to alleged excessive bureaucracy
- or just laziness
How to start
The budget is planned for various types of projects, usually for a minimum of one year. The same applies to the household budget. Usually it is an annual budget divided into monthly periods. Depending on the type of your household, you should start by answering the following questions:
- How much money do you have? This is an obvious and basic question. It’s about the funds you have in cash. You can also write down your assets.
- How much debt do you have? It is another important question. If you have monthly loan payments, input them in to the plan.
- How much and what monthly cash inflows do you plan.
- Specify, how much and what expenses you plan. A well-created budget covers a number of areas that you need to define, such as: food, clothing, leisure, car expenses, home expenses, and more.
To specify all expenses precisely, you must additionally:
- write down and record monthly meters as: gas, electricity and water levels.
- collect bills that you will need to be reviewed.
- start observing and collecting information: how much does all things cost.
After creating a budget spending plan, all that remains is:
- Record monthly expenses. By implementing expenses month by month, you realize a budget plan.
- In the next step, check if everything went according to plan.
- And finally, create a new improved version of the budget for next year. You are improving your budget in accordance with the continuous improvement process that I outlined in this article.
At the beginning you probably won’t know your spending level. The first budget will be difficult to plan. Only after the first year or month you will know what level of expenses you will have and for what things. The unconsciousness will change into consciousness.
What platform to budget you should use?
Home budget basic tool. The answer on this question is not easy. There are some programs and websites that support keeping budget, although I personally prefer using Excel or one of the free counterparts. I think the point is, that I like to have full control over all data and processes.
You must know that keeping the budget will give you free mind. Awareness of control over your own money will be encouraging. Over time, when you repeat budgeting, you will intuitively “feel” all expenses, you’ll know by heart, how much money and how many percent of your money you spend on particular matters: food, clothes, leisure and other, and what percentage of it is. Of course, budgeting expenses and receipts is just one option. As you know, money is time and time is money – at least in most cases. You can also budget time, as a matter, that you do not have in unlimited quantity. Especially young people think, that they have unlimited amount of time. I will describe the topic of time budgeting in another article. Budgeting can also include other things, although it is rather a domain of money activity.
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