Things you don't learn in schools! How to work out a budget

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Congratulations! You are now earning a salary for the first time and all you want to do is spend! You feel free and rich and before you know it you have to borrow money because you have nothing left.  

To have money for the first time can be overwhelming, but if you work according to a budget from day one you can stay out of debt and you can save money.  

We are going to learn about the following:

1. What is a budget?

2. How do you work out a budget?

3. How can you save money?

What is a budget?

A budget helps take control of your money.  It is extremely important to be in charge of your expenses to make sure you don’t get into trouble with debt. Getting out of debt is hard and difficult and it is a road that you don’t want to follow.  Remember you always have to consider what you earn and what you spend. 

A budget helps you from overspending. You have to compare the money that you earn to your expenses and then deduct that from your expenses.  You will now know how much you have left over to spend or save.  Very good advice is to open a savings account and from day 1 start saving a certain amount of money per month.  This way you can build up a nest egg so that you do have money for unplanned expenses.   

The first thing that you have to do is to write down:

1. Your income

2. Your expenses which include everything that you have to pay for. 

3. How much you want to save? 

How do you work out a budget?

If this is the first time that you are working out a budget here are a few steps that will assist you to make the process smooth and painless. 

Know how much money you have

Add up all your earnings which should include investments, salaries, or any other income that you may have.  Once you have the total amount, this will determine the net worth and what you have to budget with. If you earn commission and you do not have a constant income it is advisable to work on the lowest income monthly available.  Take into consideration an average of your income per month if needed.  

Know how much money you owe

Make sure that you know exactly what you have to pay. This should be fairly simple to do.  Make a proper list of each and every cent that you have to pay towards debt and to other expenses.  You should have certain expenses that occur every month. 

TIP:

If you have a lot of debt, you might want to refinance to pay off other debtors and then only pay back one amount per month. 

Determine Your Average Recurring Monthly Expenses

A good idea is to keep all your receipts and paste them in a book so you can keep track of all your expenses.  It might seem like an ancient method to do this but this way you always have access to your slips, and you know exactly how much money you spend. 

If you do this from day one you should easily work out the average expenditure per month. Include the rest of your monthly bills for example your rent, utility bill etc.    

Enter this Information into a Database

In the past if you did a budget you had to write it down on a piece of paper to keep everything in order.  Today there are plenty of online tools available as well as software programs like Microsoft Excel. You can create a basic spreadsheet and work according to a basic budget to which you can add monthly as needed.   

Look at the Bottom Line

Once you have written down all your expenses and you add up the total, you have to deduct the total amount from your income.  

The money that is left can now be used for every day expenses or you can save the money to buy something that you really want.  

A good idea is to move some money into a savings account so that you have backup money for a rainy day.  

 Adjust your budged Accordingly

If your monthly income proves to be sufficient to cover all your debts, and you have money left over, make sure that you don’t overspend.  

If there is NO money left over it might be time for you to scale down on your expenses.  This step is almost always the most difficult part.  You need to cut back on certain expenses.  

You need to decide what you can do without.  If this means to stay at home and watch a movie on television rather than going out to the movies, then so be it.  You don’t want to land in a vicious cycle of debt where you give all your hard-earned money away at the end of each month and never be able to go anywhere. 

Adjust Categories Based on Reality

Remember life is full of surprises.  Everything gets more expensive each month.  You need a little bit of extra money so that you can provide for surprise expenses, like when the petrol and diesel price go up, or your rent goes up.  It is not a good idea to dive into your savings every time something becomes more expensive.  

Unfortunately, our salaries do not go up with the inflation rate, and we can’t ask for a raise at work every time something unexpected happens.  Often, we have to give up luxuries just to be able to survive without debt. 

Track, Monitor, and Be Disciplined

Keeping track of your budget takes an hour or so a week. But this will save you a lot of time in the long run. Once you have an established budget, you will want to keep it in check. 

The discipline and associated knowledge that you are making good long term and short-term financial choices will provide you with a great deal of comfort and will take you from living pay check to pay check. 

Once you get used to working according to a budget you will live more disciplined and organized.   

Final Word

If you don’t have a budget, now’s the time to create one. By following the above easy steps, you’ll be on your way to financial freedom and building wealth for the future.

How to save money

Sometimes it is so difficult to actually save money but here are a few tricks that could help you build a better future for yourself. 

Now that you’ve made a budget, create a savings category within it. Try to save 10 to 15 percent of your income. If your expenses are so high that you can’t save that much, it might be time to cut back. To do so, identify non essentials that you can spend less on, such as entertainment and dining out.

One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for—perhaps you’re getting married, planning a vacation or saving for retirement. Then figure out how much money you’ll need and how long it might take you to save it. You have a much better chance of succeeding if you’re working towards a specific goal.