5 Simple Steps to Create a Successful Budget
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How to Create a Budget

Creating a budget is not an easy task for both the young man who received his first salary and the newly created family that clearly defined their goals and priorities. There are many reasons why people start financial planning. Some can not compare their own income and expenses, others come to the understanding that some items of expenditure require optimization. Often, for a better life, it is enough for us to figure out our budget, and yet it is much easier than additional work.

While budgeting, an ordinary person or a novice entrepreneur initially comes down to a simple algorithm. As profit streams become more complex, planning is reviewed and optimized again. A large role is played by goals – the rapid accumulation of money through savings or basic living comfort with some margin for unforeseen situations. 

Not everyone is ready to start optimization right away. But it will be very useful for you to at least record your income and expenses over a period of time. Understanding which way you are following gives you more space for action. You may not have to work so hard if you realize that the “extra” money can be effectively invested.

If your notes show the opposite, it’s time to start planning.

  1. First, calculate and fix the net monthly income. Recall that the net income in the economy is the amount that you get on hand (that is, net of taxes). It is important to identify absolutely all sources of income, even such as tips or bonuses of your counterparties that you receive on an ongoing basis.
  2. Depending on the initial goal, it is necessary to determine the amount that you are ready (or should) save. Your savings are a mandatory part of the budget. Many people ask, what amount are we talking about? A good indicator is 15 percent or more of the amount of income. In any case, this percentage should be stable.

Important! Planning and matching your plans should be satisfying. If the amount that you have designated for savings is too boring for you, you should review it already in the second month of creating the budget.

  • List the expenses by categories. Experts recommend such a distribution: fixed costs (all that you can’t do without), controlled (flexible) costs and discretionary (roughly speaking, a whim). In fact, all categories are important and their designation is a purely economic (not psychological) method. 

Of course, fixed costs – for example, renting an apartment, paying utility bills and credit payments – are not being revised. But you can work with flexible expenses: either reducing them, or getting more than what you want for the same money. For example, having received a high rate of expenditures on household and food products, you can think about options for buying in bulk, as well as choosing regular partners (stores) that offer a bonus system.

  • We subtract the amount of expenses from the total monthly income and, if we go negative, we review the category of discretionary expenses. Now we ask ourselves the question: which of the frequent purchases is a status criterion, and what brings real pleasure? There are things for which it is not a shame not to pay.

Important! Review your budget more than once a month. Having directed yourself in the right direction in the middle of the reporting period, by the end of the period you can get a more satisfactory result.

Compare the performance of different months and think about what your spending directly depends on. If in a more active business period you spend more “negotiation” money, but no return, then perhaps you should reduce your activity. Look at the successful people around you. It is likely that they save everything! It is also clear that 99% of them plan their budget.

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