Creating a budget and rigorously implementing it is tough, but it is the best tool to regulate your finances and meet your monetary goals.
What a Budget does for You
1. Gives a meaningful picture of your spending patterns
2. Alerts you in case you are living beyond your means
3. Helps identify areas in which to cut costs
4. Helps set targets to achieve a certain level of income
For a successful budget, here are a few handy hints:
1. Keep it Simple
Identify sources of income and areas of expenditure. Have broad categories that can easily be identified.
For expenditure, you can have segments like rent, insurance, food and entertainment, medical etc. Likewise for income, categories could include interests, salary, bonuses etc. Once the broad categories have been created, incorporate the details accordingly.
2. Realistic Targets
While estimating your expenditure, keep it real. Do not write $60 as expenses for food and entertainment when you know that you will spend over the limit. Rule out all false assumptions from your budget.
3. Consider Future Prospects
Plan your budget keeping future in mind. This could include buying a house, new winter clothes, arrival of a new baby etc. This would ensure that you judiciously utilize your income and practice frugality to meet future expenditures.
4. Track Transactions the Proper Way
Once the budget is created, update your income and expenditures regularly. Record the expenses for the month in which they were incurred and not the month in which they were paid. This will determine whether your expenditure is in consonance with your income or not.
Refer to your budget weekly and if you are going off track, make quick adjustments in the budget.
If your income increases, do not indulge in lavish living unless you are sure that you are ahead of inflation.
5. Learn to Save
Create an emergency fund. No matter how small the earnings, learn to put aside a part of your income to meet unforeseen liabilities.