Creating a monthly financial plan may not be considered as an exciting thing to do, but it is in fact one of the most important plans that one will draw up. Learning how to create a budget is easy and once mastered it will help one deal with all those financial curve balls. Budgets allow one to have control over what is being spent and how money received is being managed.
Firstly, start by getting all of ones financial paperwork gathered up. This will be documents such as, bank and investment statements, utility bills for the previous month as well as any other items that one may have to show income and expense amounts for the month. This step is mainly to ascertain what, on average one spends in a month.
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.
On completion of this step one then moves on to the total monthly expenses. Here one will write a list of all the items that they intend spending their income on during the month. The list should be comprised of all debt for example, mortgage, rent, car payments, utilities, savings and groceries etc.
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 are all the items that form part of the list but vary in costs, like gas, groceries, entertainment, these are usually put down as amounts that one would like to have available and are rough estimates. These expenses form the adjustable part of the budgeting process.
One must then deduct the total expenses from the total income amount and if there is more income than expenditure then it is a good thing. As in this case one will be able to look at saving a bit more each month or alternatively putting extra money onto debt so as to pay it off quicker and save on interest costs. If the two are swapped around then one will have to look at where money can be saved, this is where one will start playing around with the variable expense amounts to try and even the amounts out.
At the end of each month it is important to review these lists to see what one spent and if it was according to the recorded plan. This is an important step so that one can compare the two and assess the full financial situation. Children are never too young to start learning how to create a budget and every parent should ensure that they are taught these skills so it becomes a natural way of life for them.
Firstly, start by getting all of ones financial paperwork gathered up. This will be documents such as, bank and investment statements, utility bills for the previous month as well as any other items that one may have to show income and expense amounts for the month. This step is mainly to ascertain what, on average one spends in a month.
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.
On completion of this step one then moves on to the total monthly expenses. Here one will write a list of all the items that they intend spending their income on during the month. The list should be comprised of all debt for example, mortgage, rent, car payments, utilities, savings and groceries etc.
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 are all the items that form part of the list but vary in costs, like gas, groceries, entertainment, these are usually put down as amounts that one would like to have available and are rough estimates. These expenses form the adjustable part of the budgeting process.
One must then deduct the total expenses from the total income amount and if there is more income than expenditure then it is a good thing. As in this case one will be able to look at saving a bit more each month or alternatively putting extra money onto debt so as to pay it off quicker and save on interest costs. If the two are swapped around then one will have to look at where money can be saved, this is where one will start playing around with the variable expense amounts to try and even the amounts out.
At the end of each month it is important to review these lists to see what one spent and if it was according to the recorded plan. This is an important step so that one can compare the two and assess the full financial situation. Children are never too young to start learning how to create a budget and every parent should ensure that they are taught these skills so it becomes a natural way of life for them.
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