How to make a budget

  1. Keep track of your income and expenses
  • The first step is to keep careful records of the money coming into your household (income from all sources) and the money going out (expenses).
  • You can then use this information to create a cash-flow statement that shows where your money comes from and where it goes during a specified period of time.
  • Analysing your cash-flow can help you figure out whether your expenses are greater than your income.
  • A cash-flow statement will help you identify where you can cut back on spending and ways you can save more.
  1. Create budget categories that are appropriate for you
  • Once you have estimated your monthly net income, the next step is to think about appropriate categories for your budget.
  • The two most basic budget categories are spending and saving.
  1. Set your financial goals.
  • Goals can vary from meeting basic needs, getting out of debt, educating children, to buying a house etc.
  • Once you decide on your priority goals, figure out the cost of each and set a time frame for achieving it.
  • Estimate how much you must allocate to savings every month to achieve each goal.
  • If this amount is more than you think you can afford, make adjustments by extending the time you need to save the desired amount, reducing the cost, or changing the goal.
  1. Allocate your income across your budget categories.
  • If your cash-flow statement provides a good and detailed estimate of your current income and expenditures, you should be able to identify opportunities to reduce spending and save more.
  • When you allocate money across budget categories, consider your priorities and financial goals.
  • If, you don’t have enough income to pay for daily necessities, repay debt and save for specific goals you know that you will need to make adjustments in the budget.

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