Module Three what to consider before creating a budget. A budget is a very personal tool and is tailor made for each individual. What works for some people may not work for others. Your budget can depend on your income, your goals, your expenses, etc. There are some basic items to contemplate before creating a budget. In this section we will explore the different elements that you should consider before creating your budget.
Understand your income. Oftentimes, people have a tendency of living beyond their means. Everywhere you look, there are credit cards and loans available to help you sink further into that hole called debt. People charge items to credit cards that can have interest rates as high as 29.99%. When the bill comes in, oftentimes just the minimum balance is paid. This type of financial behavior means filling the pockets of the credit card companies with your hard earned money.
If you are able to understand what your income is and live within your means you can climb your way out of your day. Your income consists of the money that you and your spouse make each month from your jobs. It could also consist of any side work or at home business that you may be involved in. When considering your income, you want to only budget for the money you consistently earn. If you have a side business that doesn't consistently earn a certain amount of money, you will not want to include that in your budget. The extra income can be invested in additional savings, paying down debts or entertainment.
Determine a budget duration. When you are developing your budget, the duration is important to factor in. You can make your budget as simple or complex as you wish. You could create a budget for a year and create sub durations per pay period or per month. Your budget duration could be determined by your goals also, if your goal is to pay off your credit card within the next two years, then you can make a budget reflecting that the most common budget duration is a yearly budget that is broken up into monthly periods. There is no right or wrong Way to determine your budget duration.
It completely depends on your needs. Anything goes as long as it works for you determine expenses. Of course, with any budget you need to know your expenses. You can build a great budget, but if your expenses are not accounted for it will be a wasted effort. There are two categories of expenses, fixed expenses and fluctuating expenses. A fixed expense is an amount that stays the same each month or a period.
A fluctuating expense is an expense that varies in its costs. We will explore these two categories more in the next two sections. Oftentimes, people will create a budget and not consider all of their expenses. Not understanding what is being spent is the first step to failure in a budget. When determining your expenses. You want to include items like housing costs, medical costs, transportation costs, etc.
Take the time to write it down and make a list of what you think your expenses are. Give yourself time to really Think about your money or yearly expenditures before committing to what you've written. Oftentimes, expenses that you hadn't thought about at the time will come to you later on track what's being spent. Even though you have made a list of your expenses, sometimes what we write down as an expense is different than what we are actually spending our money on. A great resource and weight loss is to have a person write down what they eat each day. This record allows them to be accountable for their food choices, and allows them to see what their nutritional intake really is.
Keeping a record of what is being spent will allow you to really evaluate what you are spending your money on. A lot of times, the small items are overlooked, but those small items can build into a large amount of debt for some, I suggest that you keep a log for at least a month of everything that you spend money on. With this log. You can see where your money is really going. If you are able to continue to keep the log after you start your budget, then you can see the Progress you're making case study. Jen and Eva are really struggling financially.
They have tried really hard to save money, but it all seems to fly out of their pockets as soon as they get it. They shop at thrift stores and try to use coupons shop the sales and clearance racks. No matter what they do, they just can't seem to get ahead. Jen decides that they need to start writing down the money that they get from their jobs. They see that they earn more money than they thought they did but are still struggling financially. He decides that he will start writing down everything that they spend their money on.
He soon discovers that they are spending a lot of money on items they don't necessarily need because they are on sale. Together they decide that they need a budget to get back on their financial track.