Planning a Budget
by emiliebrousseau on March 29, 2017 - 11:36am
The budget is one of the most useful tools in financial planning. It is a very important process because it helps people to control their money, to save and to pay back their debts. Also, the budget is easy to use when it is done properly. There are four principal steps to follow to plan a budget as well as possible: the calculation, the setting of a goal, the division and the choice of a tracking method.
A budget can be done by hand, on paper, but It may be long and difficult to calculate everything. So, the software Excel or some other software should be used to plan a budget that will help the person to know all the expenses and the savings. There is no material that is needed to plan a good budget, but a ledger, a book in which the person writes all their cash flow may be effective.
The first step of the process is the calculation. In this part, all the money that the person earns and all their expanses must be calculated. It is very important to verify if all have been counted in this step because there may be errors in the following stages if there are some in the calculation.
Next, there is the setting of a goal. During this step, the person has to choose a goal that they want to reach by doing a provisional budget. It can be for a trip, for buying a new car or a house and many more objectives that somebody has. It is an important part of the process because it gives to the person the necessary motivation to save money.
The division is the third step of the planning. The person divides in some categories all the expenses they need to do during a week, a month or a year. By doing this step, they make sure they earn enough money to pay all what they need. It is also recommended to have a category for emergencies to avoid any bad surprises.
Finally, the last step is the choice of a tracking method. The most common one is the ledger. If the person does not choose a good way to track their budget, it will be very hard for them to know if they respect what they previously decided. The person will also know if the planned budget corresponds to their needs and will be able to modify some parts if it does not.
There may be problems if the steps are not followed. There will be errors in each part if the first one is not well done. The person will not be motivated to save money if they do not have a goal. In addition, the person will not know if their budget is all right if they do not choose a good method for them.
To conclude, the budget is very important to manage all the cash flow. When all the steps are correctly followed, this tool is the better way to save money. Making many revisions on the budget is the best tip I can give because it is the better way to upgrade it.