What is budgeting?
A budget is a plan that shows all your monthly cash inflows and outflows. It is a snapshot of what you have and what you expect/plan to spend, which allows you to achieve your financial goals, by helping you identify your spending and saving habits.
Why is budgeting important?
Budgeting is the most essential part of financial planning. The amount of money anyone has is not a sign of how much money they make but rather how effective their budgeting is. If you want to handle your finances effectively, you need to know where your money is going. Contrary to how it may seem, budgeting is not difficult, it is not complicated, and it does not cut the fun out of your life – budgeting saves you from future financial hardship and a life of debt.
[TO WATCH] Watch the following video to help you understand budgeting, how to budget, and the importance of a budget.
[TO DO] $tart $mart Budget Checklist
- Identify where you are getting all your money (revenues)
- Identify where all your money is going (expenses)
- Analyze and look for where you can make financial changes to save money
How to create a budget
You can use a blank sheet of paper or a spreadsheet on a computer to develop your personal budget, or use the template below.
[TO DO] An easy to follow example of a budget template can be found here.
To help you fill out your template and understand your money habits, you can go through the rest of the module.
Figuring out Your Income
- How much money do you make?
- Do you earn your income weekly, bi-weekly, or monthly?
- Your budget should assume the same schedule as the majority of your expenses, which tends to be monthly. Calculate how much money you make after taxes and include all possible income, (ex. salary, tips, bonus, etc.). If you only work seasonally, then average out your income to last you the entire year, in twelve months.
Know Where Your Money is Going
What are your expenses? Remember that knowing where your money is going at all times keeps you in control of your budget. Consider your fixed expenses and variable expenses.
Fixed expenses are expenses that are usually the same amount each month. What are your fixed expenses?
Variable expenses are your irregular expenses; they are expenses which you have control over. What are your variable expenses?
How to keep track of your expenses
- Track expenses, keep every receipt, or take pictures of every receipt and make a separate folder for it in your phone
- Enroll in online banking so everything is recorded for you
- Review your bank and credit card statements carefully each month – banks can make mistakes too!
- Total your expenses at the end of each month and review how you are spending your money
This money should always be saved or invested. If the difference between your income and expenses is negative, that means you are spending more than you are earning. You must decrease or eliminate some of your expenses.
Write some ways you can save in the GOALS section of your personal budget within the template, before you go on to the next module.