Budget is a plan that allows us to know how much money we have and how it is coming and how and where it is being spent. If we don’t know how much money we have and how it is coming and how it is being spent, then our path of financial success will be a difficult one. Budget is a plan which has outlines of operational goals of an organization. So budget can be felt of as an action plan. Budget helps the business in allocating resources and formulating plans and evaluating performance.
Determining how much income we have is the first step in creating budget and it is easy. And difficult task is that we will have to view our expenses. If we have any sources of income like interest, dividends, a side business and so on then we can also include those.
We know about our income and now we should know how much expenses are there in monthly basis. We can start with fixed or regular payments like rent or mortgage, insurance, payments, debt and taxes. A particular amount that is not changed for spending monthly is called as fixed payment. Remaining money should be found out and where it goes after listing the fixed payments. Analyze how cash was spent on things such as groceries, utilities, subscriptions, entertainment and so on. This type of handy work sheet will help to maintain track of expenditure.
All the information which helps to formulate budget should be known by everyone. We can get a positive number or negative number by subtracting the total expenses from the total income.