In this article I'll discuss some of the things you might consider in order for you to make an effective budget. Also this article aims to explain some other things related to simple budgeting that you may take in mind or use in the future.
Allocating funds is one of the essential skills that we need to learn because we use it everyday. In fact, we naturally learn it while we are growing or approaching our maturity stage as humans. As our income grows the more we need to master the proper way on how to make a budget or else the efforts we exert just to earn money will put in vain.
A budget in its basic definition is a plan specifically financial planning or allocation. We might think that we don't make use of budget in everyday life but actually we use it unknowingly because as what I've said earlier it's our natural skills yet we still need to hone it just like the other skills we have.
How to make a Personal budget?
In making personal budget there are five (5) things we need to consider, here's how to make it;
Gather all financial statements
In here, all of our financial statements from the different source of income we have, should be sum up and analyze because this is the source where we will start to compute the rest of the steps.
Add up your income
The second step is adding up all your income from the sources, now you might thinking why the second step is adding all your income instead of computing the expenses first, that's the common mistake we commit in making a budget and the reason is simply because we wanted to check how much our expenses first before computing our income which is wrong. We need to compute income first because this is where we will get the money to settle our expenses.
List your monthly expenses and divide into fixed and variable columns
In listing expenses we have to consider our fixed expenses and variable expenses. Fixed expenses are expenses which do not change in a certain time while variable expenses varies base from the quantity you use.
Less your computed expenses from the total income
Perhaps this is the most exciting part because this is the moment of truth. It's self explanatory so I don't need to explain this anymore.
Review and adjust expenses accordingly
After subtracting your expenses from the computed income it doesn't mean you're done already because you need to proofread it to check for accuracy and adjustments if necessary.
50/30/20 rule is one of the sound budgeting techniques where;
50% is intended for your needs, that means half of your income should be allocated for your daily needs such as foods and daily necessities. 30% on the other hand is for your wants while 20% is for you savings. However, this rule is not mandatory because you can modify the percentage of allocation base from your preference.
Let's talk about savings, most of us saves money for future use and we commonly saves what's left form our money after settling all the expenses we incur but then again it's not the best formula. Most of us use this; " Income - Expenses = Savings" which is wrong. The correct formula should be " Income - Savings = Expenses" because we ought to save for our future that's why the first thing we need to deduct from our income is our saving and the difference will now be intended to settle all of our expenses. Take note savings isn't the key for your future because savings itself won't save you, it's just the first step after saving you still need to make a way in order for that money to grow even further and beyond.
The Paradox of Life
Paradox of life consist of three things these are:
Here is the simple explanation for this paradox,
A young man has plenty of time and energy but with a small amount of money or sometimes nothing. When this man becomes mature enough and finally get himself to work he possess now a lot of money and energy but has no time to spend the money he earned. Finally the man retired because of aging, at this moment he have money and a lot of time to spend his money but he's already exhausted. This is the paradox of life.
I hope you learn something from this article.
Note: Not proofreaded!
This is really helpful for savings, I like the 50/30/20 method. There's also way to save more, it is Japanese Kakeibo Method of Saving. By the way, nice article!