Creating a budget and how to use it
Keeping track of one’s finances can be challenging without the right tools. For many people, the idea of keeping track of their finances rarely includes a budget.
What is a budget?
A budget is an itemised summary of expected income and expenses for a defined period of time. It should ideally help to keep track of spending patterns.
In order to create an efficient budget, it’s important that you provide as much detailed and accurate information as possible.
The most common types of budgets include a fixed or variable budget, a bare bones budget or one that is based on the 50/30/20 rule, which breaks down spending habits into 3 distinct categories.
It’s important to keep in mind that a good budget relies on balance.
How to create and use a budget:
Gather all of your financial statements– this means finding all of your receipts and gathering all of your invoices.
Record all of your sources of income- whether you are paid for giving extra art classes to learners in an after-school project or if you moonlight as a voice-over artist in addition to your full-time job, make sure that you keep track of all your forms of income.
List all monthly expenses and divide them into fixed or variable expenses- make sure that you list all your expenses. Even the coffee you buy every morning on your way to work makes a difference.
Total your monthly income and expenses- add everything up and compare. This will give you an indicator of how to change your spending behaviour.
If your income is greater than your expenses this may mean that you have more money to spare on paying off debt. If your expenses outstrip your income this is a good indicator that you may need to lower spending.