Biggest wealth-building tool for most of the people is income. Having control over income is important for both financial well-being and peace of mind. And the best way to harness the power of income is the monthly budget.
Creating a template of your budget can give you a feeling of being more in control of your finances and allows you to save more money to reach your short-term and long-term financial goals.
Various systems one can use to track the money
- Notebook and pen:
- Least expensive
- Accessible at any time.
- Can be misplaced and is difficult to maintain long-term savings and patterns in a notebook.
- This can be done using Microsoft excel.
- Less likely to make mistakes because calculations can be done easily.
- Financial software:
- They keep track of bank and investment accounts.
- They do have drawbacks because they are paid and should be upgraded once in a while.
- Examples of such software are Quicken and Microsoft Money.
Using the budget:
These are the simple steps for using your budget.
- Track your spending:
You can make an educated decision about allocation of your money once you know where the money is going. Tracking can be done by using the same credit card every time or by saving receipts for all the purchases. So keep updating the budget using any of the means given above.
- Using accurate descriptions:
Writing down the expenses by what they are rather than the store of purchase will help you to figure out the expenses on a particular category.
- Budget by the month and not by the Paycheck:
This helps you to think slightly longer-term. And also helps you to get a fresh start every month. Suppose you had high expenses in one month, you can look forward to the following month to keep in control.
- Pay by cash:
Credit cards and debit cards make you overspend easily. It would be better to implement a strict policy of paying cash for clothes, groceries, and non-essential items.
- Boost your income
If you have a hobby or a talent, then better find ways to boost the income. Anything from basic handy works to teaching an instrument can be a way of earning extra money. And you can even make this side-business full time if you lose your job.
- Plan for both fixed and variable expenses:
Expenditure on items like rent or health insurance is fixed expenses and variable expenses are gas and utilities. Depending upon your self-control, costs like groceries can fall into either category.
Also, do plan for occasional expenses. Spending on gifts, doctor visits, parties etc. come under this category. These happen only a few times in a year. But there is no use for going into debt for these expenses.
A budget can be more or less detailed depending upon the level of your self-control. These are some ways to plan a budget.