Creating an effective financial plan on a monthly basis could be seen as a mundane task, but all the same it is a very important one that needs to be done. Being told how to create a budget could be essential in helping one dodge all those tough financial spots that occur every now and then. If these rough patches occur more often then one definitely needs to start budgeting to get control over the situation.
For those that do not know how to do this, start by collecting all paperwork that pertains to finances. These are items that show bank accounts statements, utility bills and any other receipts that show either money received or spent in the previous month. The reasoning behind this is to get an idea of what one spends on average over a 30 day period.
Next one will need to make a record of all income sources. If self employed or perhaps there are any other outside revenues then these need to be taken into account as well. In cases where one gets a regular salary amount from which taxes are deducted automatically, then one will only use the net amount; all of these amounts are then added in order to get the total monthly income.
When the total income has been determined, then it is time to write down all the monthly expenses. Record all the things that one intends spending money on during that month. These will include set items such as mortgage, car and loan repayments and other items such as utilities, groceries, savings, insurance and such.
Expenses should then be broken down into fixed and variable categories. Fixed expenditure is things that are more or less the same amount each month such as rent/ mortgage, cable, internet, car and credit card payments etc. These items are not likely to change but form the most important part of any planning.
Variables will be all the other items that are necessary but the amounts spent vary from one month to the next. These are gas, entertainment, groceries, holiday savings and other such items. Most of these amounts will be estimates based on previous amounts spent and this is the part of ones budgeting the can be adjusted.
Finally all the expenses are subtracted from the income and this will indicate if there are any funds leftover. If one finds there are extra funds then it gives leeway to either pay debt off quicker or put more into savings. However, if the opposite is true, then revert back to that adjustable section, which is namely, the variable expenses portion and then try and eliminate some costs there.
Each month one will have to review the amounts to make sure that financial plans are still on track. At the end of the month compare what was spent versus what was estimated. Every parent should teach their children how to create a budget from an early age so that it will be a natural part of their lives.
For those that do not know how to do this, start by collecting all paperwork that pertains to finances. These are items that show bank accounts statements, utility bills and any other receipts that show either money received or spent in the previous month. The reasoning behind this is to get an idea of what one spends on average over a 30 day period.
Next one will need to make a record of all income sources. If self employed or perhaps there are any other outside revenues then these need to be taken into account as well. In cases where one gets a regular salary amount from which taxes are deducted automatically, then one will only use the net amount; all of these amounts are then added in order to get the total monthly income.
When the total income has been determined, then it is time to write down all the monthly expenses. Record all the things that one intends spending money on during that month. These will include set items such as mortgage, car and loan repayments and other items such as utilities, groceries, savings, insurance and such.
Expenses should then be broken down into fixed and variable categories. Fixed expenditure is things that are more or less the same amount each month such as rent/ mortgage, cable, internet, car and credit card payments etc. These items are not likely to change but form the most important part of any planning.
Variables will be all the other items that are necessary but the amounts spent vary from one month to the next. These are gas, entertainment, groceries, holiday savings and other such items. Most of these amounts will be estimates based on previous amounts spent and this is the part of ones budgeting the can be adjusted.
Finally all the expenses are subtracted from the income and this will indicate if there are any funds leftover. If one finds there are extra funds then it gives leeway to either pay debt off quicker or put more into savings. However, if the opposite is true, then revert back to that adjustable section, which is namely, the variable expenses portion and then try and eliminate some costs there.
Each month one will have to review the amounts to make sure that financial plans are still on track. At the end of the month compare what was spent versus what was estimated. Every parent should teach their children how to create a budget from an early age so that it will be a natural part of their lives.
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