Budget Planning & Management
Personal budget planning and management is critical if you are going to be successful with your money. If you are not planning, it is too easy to spend all of your money without paying attention to your longer term goals. It is important to have a plan written down to meet these goals. The most basic process of budget planning is to try to predict the money that will come in and plan what you will spend in each category in advance.
Other People Are Reading
-
Types of Income and Expenses
-
Spending and income can be broken down into two categories, fixed and variable. Fixed income or expenses are as their name implies; they are fixed and do not change often. Examples of fixed expenses would be housing fees like your rent or mortgage. Examples of fixed income would be a salaried job or disability benefits. Fixed items are the easiest type to plan for.
Variable income or expenses are subject to change each month. Variable income may be a bonus or commission. Variable expenses would be eating out or entertainment expenses. You have more control over variable expenses and the most potential for savings in them.
Function
-
All budgets follow the same basic format if they are written on a piece of paper or entered into a computer program. The budgeted or expected income is placed at one part of a sheet, and the expenses are at the other. Each of these are broken out by individual categories, by varying degrees of detail. The expected income is made to be equal to the expected expenses to make a balanced budget. Each category should be adjusted as necessary to achieve this balance. When every dollar is planned out with zero dollars left over, it is also called a zero-based budget.
-
Benefits
-
Adhering to a budget over time will improve your financial well being. It may also bring you peace of mind. Many people budgeting find that they feel less guilt over spending money because they have already planned to spend the money. Budgeting also helps you meet your savings goals and have a more secure retirement. If you want to get out of debt, a planned budget helps you do that as well.
Envelope Budgeting
-
Envelope budgeting is an old form of budgeting, dating back to the Great Depression era. It is simple to implement, but extremely powerful. You envelope budget by assigning an envelope to each of your budget categories. When you get paid each week, you divide up your cash amongst the envelopes as you planned to spend in each category. Be sure to include categories for expenses that do not come each week like utilities or insurance. Then you spend out of each envelope as you spend in each category. When the envelope is empty you are done spending in that category for the month. Be sure that you fund envelopes for savings categories as well. If you don't want to use paper envelopes you can do the same type of planning using a computer program made for this or a spreadsheet file.
Misconceptions
-
Many people who are not accustomed to budgeting their income believe that it takes a long time to correctly budget your money. If done regularly budgeting doesn't take very long and more than pays off for the time invested. Some people also think that budgeting is difficult to do correctly. Almost anyone can keep a budget, either with paper or a computer.
Considerations
-
If you are married, sit down once per month and plan your monthly budget with your spouse. The process will go much more smoothly if you are both on the same page. Make sure that you are also planning for expenses that come up once or twice per year. Christmas and birthday gifts are prime examples of these types of expenditures.
-
References
Resources
- Photo Credit Jupiterimages/BananaStock/Getty Images
