If you're new to budgeting, it’s important to understand what a budget is and how it helps you examine what you earn (your income) and how you are spending that income. A budget is a financial plan that takes income and expenses into account and provides estimates for how much you make and spend over a given period of time.
Budgeting Basics
Addressing your financial situation and distinguishing between needs and wants is an important first step before creating a budget. Acknowledging areas where you are overspending can be an eye-opening experience. Creating a budget and sticking to it can help you save and reach your short- and long-term financial goals. This is not a one-time exercise. Revisit and rework your budget as your financial situation evolves so that if you have a new job, a financial windfall or setback, it reflects your current situation.
- Fixed expenses are expenses that stay the same from month to month, such as rent payment, subscriptions, insurance, utilities such as internet, transportation card and school fees.
- Flexible expenses are expenses that change from month to month, such as utilities like water and electric, groceries, or entertainment.
- Total expenses are the combined amount of your fixed and flexible expenses.
- Total monthly income is the income from your job or other resources including rental income, side business, government benefits and others.
- Disposable income is the money left over after taxes are subtracted from income.
The next step is to create your monthly budget using this basic Budget Worksheet. If you find you are not able to stick to your budget, it may mean you are spending beyond your means or that your budget is not flexible enough. Take the time to review and readjust your budget monthly until you find a plan that works for you. Here is a simple rule to follow when setting up your budget:
Income – Expenses = Savings
Income > Expenses = Financial Health
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