How to Plan your Budget for the New Finacial Year
Planning one’s finances is a very delicate balance of expenses that he or she spends against the income that a person brings in. The resulting amount when you deduct your income is called the cash flow.
If a person spends more money than he makes then he or she ends up with what we call a deficit in the budget or negative cash flow. Sadly, this is the norm in today’s society because of the rampant overspending that families do.
It may be the common occurrence among families but it does not mean that a person has to fall in the same trap. There are only two ways to avoid going into a deficit and that is to increase your income or decrease your spending. Since you cannot walk into your boss’s office and ask for a raise we might as well look at reducing your expenses. I would ask for the raise personal or think of other ways of earning income. Who wants to shrink the way they live.
Planning the budget starts by listing down your major expenses. The major expenses are composed of housing expenses, debt payments, Transportation expenses, Clothing, Medical expenses and, finally miscellaneous expenses.
Perhaps, the largest amount of any family’s income goes towards the housing. The major component could either be from a Mortgage or the rent paid towards the occupancy of the property. Then, there are also the insurance premiums and maintenance expenses used to fix up the house or apartment.
The next things that you need to list down are your payments that go toward your debt. This includes credit cards, student loans as well as any other personal loans that you may have incurred. This part of your budget is the most flexible because you can either choose to pay just the minimum or accelerate payments to pay off debt sooner.
You also need to think about the day to day expenses like transportation, clothing, and other miscellaneous items. These miscellaneous items include luxury items like vacations and dining out. It is important to be detailed and write down everything that you spend on in a monthly basis.
Now that you have a detailed list of all the expenses subtract that against the income. The resulting value is your cash flow and the goal is to have a positive cash flow. If you have more expenses than income the result would be a deficit.
If a person has a negative cash flow, the first thing you must do is adjust your budget to fit the income you are currently spending. The items that you can limit spending on are usually the luxury items. When you are operating over the budget, then, the first action is to limit dining out and other entertainment expenses.
After limiting expenses, the next thing you need to look at is your expense that deals with clothing. Clothing is essential in our day to day lives but if bought in excess it could eat in to your income and leave you in debt.
The last part of planning your finances involves sticking to that budget and planning savings. Although the budget needs to be followed religiously, your budget is not final. It needs to be reviewed regularly. The goal of the budget is to limit your spending so that you can put more money in savings and investments.
Your budget is important to your financial health. With a sound budget and discipline to follow it you are certain to reach your dreams and achieve the aspirations you have set for yourself.
Saving is the new spending.
