How to Make a Budget Plan

People have to learn to manage their finances. There are a lot of people who have made the common mistake of spending way more than they should and that, in turn, can lead to some really serious financial problems. No matter who you are, you need to be aware of the state of your finances and how you spend your money.

This is the reason why people need to come up with their own personal budget plans so that they can keep track of both their earnings and expenses. This article is going to focus on how you can create a budget plan that will help ensure that you do not overspend, so you can focus on your financial goals.

How to create a budget plan

Whether you are making one for your business or for personal reasons, you have to be able to come up with a budgeting plan that works. If you want to make sure of that, then here are the steps that you have to follow:

1. Set your goal

If you have a goal, then this will make it so much easier for you to stick to your budget, and it is one of the best ways for you to measure your success or failure in meeting it. So, think about why you need to have a budget. Is it because you are trying to pay off your college loans? Are you trying to pay back bank debts? Or,  maybe is it because there is a piece of equipment that you really want to purchase? In any case, you have to make sure that you are able to set goals that are specific, measurable, achievable, relevant, time-bound, evaluated, and reviewed. By doing this, you improve your chances of successfully meeting your goals from the very beginning.

2. Calculate the amount of money you earn after tax deduction in a typical month

You need to see just how much you are able to bring home with you at the end of each month. So, think about your net income once all of the necessary tax deductions have been made. This should include  your paycheck, tips, scholarships, legal entitlements like child support, alimony, government subsidies, and just about any source of money that goes into your wallet or inside your bank account. This is your income and you need to know the exact numbers if you want to ensure that you are able to figure out just how much of it you are going to use for your budget.

3. Calculate your expenses

Once you have been able to calculate the amount of income, then the next thing that you have to do is calculate the number of all expenses that you have made within a typical month or week. The first thing that you need to do is to save and keep track of all the receipts within the past week or month. Knowing your monthly expenses on groceries or gas, for example, makes the next step much easier. If you are going to start writing your budget  without having most or any receipts, then it is very likely that the entire process is going to be more difficult. Receipts contain the exact information of just how much you have been able to spend on particular items, so it is best that you keep hold of them so that you can easily calculate how much you spend on an average week or month.

4. Divide your budget into basic categories

You need to organize your budget to help you keep track of where your money is going. Here are a number of items that you should consider placing in your budget plan: housing, food, entertainment, clothing, medical, savings, and miscellaneous items. You can also organize your expenses into your needs—such as the two important ones being electricity and water—and wants—such as clothing and entertainment. If you are going to use this method, then be sure that you have your priorities straight. If you have a  huge loan that you have to pay off as soon as possible, then it is best that you put that on the top of the list so that you will remember to invest money into it straight away.

5. List all of your spending for each category

List the amounts for everything that you spend on at the end of each month. This is the main reason why you should never throw away the receipts that you were able to acquire within the month that you have decided to create your budget plan. In every category, make sure that you accurately list all of the numbers to know just how much you have to pay at the end of each month. If you do not have receipts or if you do not exactly know the amount that you spent on a particular category, then it is best that you give a rough estimate. The more accurate you can possibly be, then the higher the chances that you are able to stick with the budget plan that you are creating.

6. Add up all of your spending by categories

Add up all of the expenses in every single category so that you will be able to see just how much you spend at the end of each month or to see just how much money you take out of your wallet or bank account every month. This way, you will be able to compare it with the amount of income that you receive. If you see that your expenses are much higher than your income, then you should definitely consider making a few cuts that will ensure that your income is higher or at least breaks even with the amount of expenses that you have. You do not want your personal budget to be thrown in disarray or ruined simply because your expenses are higher than your income. See what you do not need or what you can hold back on spending on to ensure that you have more than enough income that will allow you to save, get through the month, and reach your goal.

7. Decide on a method to keep track of your budget

There are a ton of ways for you to be able to keep track of your budget. You can always go back to the traditional method where you can make use of a good old-fashioned ledger book that you can purchase just about anywhere. However, consider technology’s advancement in this day and age. You can always go with the option to use computer programs such as Microsoft Excel as these can help you easily keep track of how much you spend and save. Also, you can pretty much use these programs on your phone, allowing you to access and adjust them at any given point in time.

8. Set up your ledger

If you decide to make use of a ledger book, then you should leave the first five odd pages blank as you will be going back to that later. Next, you have to divide the rest of the ledger into a number of sections that is similar to the number of categories that you have. Put each main category on the first page of each section. Doing this will give you a lot of room where you can place a lot of entries for every category. Because, let us face it, a category such as “Food” is not exactly going to consist of one or two items. Be sure that you have all the room you need so that all of the entries in every different category will be able to fit.

9. Make all of the necessary adjustments

If you think that you have to revise your budget in order to balance it out and meet your goal, then all you have to do is make sure that your income is greater than or at least equal to your expenses. To find out if your budget is balanced, you need to subtract your fixed and variable expenses from your income.

  • A balanced budget means that your income is equal to or greater than your expenses. This will show that you have devised a budget that is working really well for you. While it may be tempting to use any leftover funds that you have after all of the necessary expenses, it is better that you save your money.
  • An unbalanced budget is obviously when your expenses are much higher than your income, and that is not something that you want to happen. If you are spending more than you earn or receive, you have some serious work to do to balance your budget. Remember to begin going through your variable expenses whenever you see that you are in a financial bind. Go through it and see what luxury expenses you can temporarily cut off such as spending on restaurants, entertainment, and other non-necessities. If you still think that your expenses are not meeting your income, then you may need to cut off some of the fixed expenses as well. So, you can decide to take cheap public transportation for a while to save money on gas if you think that taking away your gas bills is one of the best things to do to maintain your budget. Also, remember that it is not just about cutting expenses, it is also about how you can gain more income. You can decide to take up temporary jobs or ones that are part-time as they might just give you what you need.

Your financial status can change constantly, so it is necessary that you make alterations to your budget from time to time. You should always keep in mind that debt repayment, savings, and financial security must always be your top priorities.

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