In: Economics
A budget is a microeconomic concept that shows the trade-off made when one good is exchanged for another. In terms of the bottom line—or the end result of this trade-off—a surplus budget means profits are anticipated, a balanced budget means revenues are expected to equal expenses, and a deficit budget means expenses will exceed revenues.To manage your monthly expenses, prepare for life's unpredictable events, and be able to afford big-ticket items without going into debt, budgeting is important. Keeping track of how much you earn and spend doesn't have to be drudgery, doesn't require you to be good at math, and doesn't mean you can't buy the things you want. It just means that you'll know where your money goes, you'll have greater control over your finances.
The first step in creating a budget is to identify the amount of money you have coming in. Keep in mind, however, that it’s easy to overestimate what you can afford if you think of your total salary as what you have to spend. Remember to subtract your deductions, such as for Social Security, taxes, 401(k) and flexible spending account allocations, when creating a budget worksheet. Your final take-home pay is called net income, and that is the number you should use when creating a budget.
It’s helpful to keep track of and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.Begin by listing all your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities or car payments. It’s unlikely you’ll be able to cut back on these, but knowing how much of your monthly income they take up can be helpful.Next list all your variable expenses—those that may change from month to month such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.
Before you start sifting through the information you’ve tracked, make a list of all the financial goals you want to accomplish in the short-and long-term. Short-term goals should take no longer than a year to achieve. Long-term goals, such as saving for retirement or your child’s education, may take years to reach. Remember, your goals don’t have to be set in stone, but identifying your priorities before you start planning a budget will help. For example, it may be easier to cut spending if you know your short-term goal is to reduce credit card debt.
Use the variable and fixed expenses you compiled to help you get a sense of what you’ll spend in the coming months. With your fixed expenses, you can predict fairly accurately how much you’ll have to budget for. Use your past spending habits as a guide when trying to predict your variable expenses. You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline probably counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when it’s time to make adjustments.
Having documented your income and spending, you can start to see where you have money left over or where you can cut back so that you have money to put toward your goals. Want-to-have expenses are the first area to look for spending cuts. Can you skip movie night in favor of a movie at home? Try adjusting the numbers you’ve tracked to see how much money that frees up. If you’ve already adjusted your spending on wants, evaluate your spending on needs. You may need internet at home, but do you need the fastest available? Lastly, if the numbers still aren’t adding up, you can look at adjusting your fixed expenses. Doing so will be much more difficult and require greater discipline, but on close inspection a “need” may just be a “hard to part with.” Such decisions come with big trade-offs, so make sure you carefully weigh your options.
Tracking your income is the easy part of creating a budget. It's much harder to pinpoint your spending.but it is possible to check the spending by carefully arranging the various activities in the budget lie the way given below,by this we can check pur spendings and paln accordingly.in addition to specific categories like rent or groceries, personal finance experts recommend that you organize all of your expenses under two broad labels:
Fixed expenses are those expenses that stay the same every month. Not everyone has the same fixed expenses, but here are a few of the most common examples:
Discretionary spending is a broad category that includes every expense that changes each month. Not all discretionary spending is unnecessary. Take a look at the following examples: