Budgeting
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Budgeting
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Budgeting – one of the most important things you can do! By Lindsey StrailyLiving on a limited income can be challenging but it does not have to be impossible. The key to making a limited or fixed income work is to budget ahead of time. Budgeting allows you to know where the money is going to come from and where it is going to go, allowing you to make sure that ends meet. Many people are intimidated by the thought of budgeting because they are afraid that they do not know how to do it correctly. There is no correct way to budget, there is no correct layout to a budget, a budget is merely a tool to assist you in your finances. Whatever way it makes sense to you is the way that a budget should be prepared and used. The key to a budget is figuring out where the money is going to come from and how much and then figuring out where it needs to go and how much. Figuring out where it needs to go is a bit more difficult than figuring out where it is going to come from. Figuring out where the money is going to come from is a matter of estimating, if you do not know exactly, how much money you will earn or receive from such things as a job, welfare, child support or any other means of cash inflows to your household. A budget does not need to be exact but more your best estimate of your finances. As stated earlier, figuring out where the money needs to go is one of the more difficult steps in budgeting your money. There are probably a lot of expenses that you would like your money to go to if you could spend it the way you wanted. However, on a fixed or limited income often times it is a matter of where must the money go to, not where do you want to spend your money. First, it is necessary to figure out what expenses you will have that must be paid such as food, water, electricity, clothes and other bills of basic necessities. Depending on your situation there are other expenses that you know have to be paid with the budgeted income you have, amounts that cannot go unpaid without consequences. Once these amounts have been budgeted in, you can then decide how to allocate the remaining amount of your income to extras such as traveling, entertainment or anything else that is not a basic necessity and something which if there is not enough budgeted income after necessary expenses you could live without. A smart move with your extra income might be to put it into a saving account where it can earn interest and be a backup for financial emergencies. However the extra budgeted income you have is yours to decide how to spend. By budgeting before hand you are able to get a big picture of your finances. You can estimate how much money you will receive and how much money you will have to pay out. A budget is useful when financial matters that you had not planned for pop up. When this happens you are able to sit down and examine if you have the money to pay for these added expenses, or if they are absolutely necessary expenses you can see where you will have to take the money from in order to pay them. A budget allows you to take control of your finances and to avoid running out of money before the next pay period or not having enough money to pay for the things you or your family need. By knowing how your finances stand you are taking control of you life and directing it where you want it to go. As stated before, a budget is an estimation. It will almost never be exactly right on. The point is not to be exactly right about how much you will earn and exactly how much you will spend, this is almost impossible since a budget is made up ahead of time and so most expenses are estimated. The point of a budget is to be able to know where your money will be coming for and where you plan on spending it, making sure that you have enough inflows of money to cover your planned outflows. Budgets can identify problems with your finances before they happen, giving you adequate time to plan for them. |
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