How to Create a Practical Budget

Budgeting is the way to keep control of finances. It is written plan that highlights your savings and expenditure. The budget could be monthly or annually depending on your needs. It provides a platform for financial decisions that impact positively in your life. It determines your spending and identifies proprieties.

Setup a Budget

To setup a budget you need to calculate your income and expenditure. You could use a budgeting app, software or request you bank statement.

Do a comparison of your income and expenditure. The goal is to make sure your income is more than your expenditure. So you get out of debt and attain some level of financial freedom.

Different Types of Budgets

There are different budget types such as category budgeting and zero budgeting. Others are 50/30/20 budgeting and envelop budgeting.

Envelop budgeting is when you assign money to each category to cover expenses. While 5 category budgeting is assigning particular sums to 5 major categories.

Target Savings

A saving account is meant to provide temporary respite for your money while yielding small interest. It is important to inculcate the saving habit and put a little aside. A popular saying ‘little drops of water makes a mighty ocean’ holds true.

Try to target save towards personal goals, vacations, holidays, and school fees. The savings account could double as emergency funds for health issues and retirement.

Monitor your Expenditure

While creating a budget you need to monitor your expenditure. Setup an excel spread sheet, collect receipts and bills.

Carefully study your daily transactions, filter areas you spend the most and place them in a category. It is important monitoring your expenses through a tracking system.

Track Expenditure

• excel spread sheet
• collect receipts
• bills
• daily transactions
• bank account statement

What is Your Total Income?

Before you create a useful budget you need to know your total income. Your total income includes your paycheck, bonuses, passive income streams, supplementary income and side hustle. Deduct the sum from your 401k deductions, taxes to reach a sum.

Total Income

• paycheck
• bonuses
• passive income streams
• supplementary income
• side hustle
• 401k deductions
• taxes

What are Your Total Expenses?

Your total expenses are your fix and working capital. Expenses include medical bills, rent, and utilities.

Others are mortgage, car payment and groceries. There are also discretionary spending such as dinner dates, cinema or going to the theater.

There might be some unexpected costs like engine problem, burnt sockets or gardening costs. Estimate your monthly expenses to get a clear picture

Review the Budget

It is important reviewing the budget every six months. This will accommodate a change in priorities, interests or goals. Make sure your budget is realistic flexible and attainable.

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