The importance of having a budget cannot be overemphasised. When there is a budget, it becomes flexible for you to achieve your financial goals, although it’s step 1 out of step 5.
The sad part of having a budget is that some people do not discipline themselves enough to stick to the budget. Those who are financially successful today had a budget which they followed because having a budget has proven to be one of the financial tips; anybody could adopt.
Most of the people purchase whatever they need without thinking if they can afford it. If a particular item is not included in your budget, there is no point going contrary to your budget trying to get it.
In no particular order, I am going to reveal to you some factors that need to be considered when designing your budget, perhaps using a spreadsheet.
Figure out your Net Worth
Everyone has a net worth, and it is not just for the rich ones. To know your net worth, subtract what you owe from the amount you currently have, that will give you your net worth. Some people may not have any net worth due to their negative financial situation. And for others, it could be an eye opener.
Therefore, in creating your budget, try to determine your net worth.
Know your Income
If you are a salary earner, this can be easy for you, but those who have variable pay may find it difficult to figure out what is their actual salary. If your income is not steady, what you can do is to know the average of what you earn on a monthly basis. You can work with the figure to set up your budget.
Determine your Monthly Expenses
It is important to take cognizance of how much expenses you incur on a monthly basis. One of the ways to keep track of how much you incur regularly is to itemize the things you buy if you don’t have receipts or invoices. Do this for a month, by the following month; you would have known how much you spend monthly.
Prepare your Budget
Using a spread sheet application is ideal for budget preparation. All the information you have collated will help you define your budget. A budget is a financial document used to project future income and expenses. You create it yourself within a certain financial period.
Do not prepare a budget to fulfill financial obligations. Your budget should have a goal, and that automatically reshapes your spending habit. When you have collated all the information that I have outlined, you are most likely ready to start preparing your budget. Your budget must be rigorously followed.