Every goal requires a plan and strategy to achieve it, as well as financial goals we need to make budget planning to make it happen. Here are five easy steps we can take in making a personal and family financial budget.
Start By Setting Goals
The first thing that needs to be done is to write down our financial goals clearly and measurably, one of which includes the targeted amount of money along with the time frame so we can evaluate it. It is like better to have an emergency cost of about 10 million until the end of 2018. Furthermore, the targeted amount of money is divided by the current number of months to find out what the monthly target is.
Know Total Monthly Income
In making a financial budget, we need to know how much income we get each month, both from salary and other sources of income. It is important to remember, what is recorded is the amount of money earned after deductions in taxes or benefits on health or pension benefits for employees, or profits like net income after deducting business operating costs for entrepreneurs, traders, or freelancers.
Calculate Total Monthly Expenses
We also need to calculate how much money is spent each month. When calculating monthly expenses, calculate routine expenses such as monthly groceries, daily meal allowance, transportation allowance, mobile phone credit, debt repayments, etc.), as well as non-routine expenses (such as medical expenses and entertainment). Now for those of you who are confused, to be able to find out exactly how much your monthly expenses will be easier if for the first 3-6 months we record every expenditure.
Create a Realistic Budget
After doing the three previous steps, we can then start making a budget plan by reducing the total monthly income (step 2) with the accumulation of total monthly expenses (step 3) with a monthly target (step 1). If the final value is positive, it means that we already have a realistic financial budget plan that is following the current lifestyle. Conversely, if the final value is negative, it means that we have to re-evaluate our financial goals and check our expenses and income again.
Check Back Goals and Expenses
As already explained, if the budget plan (step 4) is negative then we need to re-evaluate the previous budget plan. Check again which posts can be changed and adjusted, taking into account the basic needs. For example, we can evaluate spending priorities, which ones still need to be included in the budget, and which ones can be eliminated, or reduced in budget value.
Apart from that, we can also reconsider the target of money and time intervals in financial goals, we can also look for other sources of income to supplement our income, in essence, the evaluation process can help us make a realistic budget.
Here are easy steps in creating an effective budget:
1. Prioritize Mandatory Expenses
Mandatory fees are fees that must be paid every month. You can identify mandatory fees as they are fixed, although some like electricity or water bills can vary from month to month. If you must pay a debt, that should also be included in your mandatory expenses.
2. Compare Estimated Costs with Actual Costs
Back to expense history. Compare nominal in several categories. Comparing the estimates with the actual costs to be paid needs to be done. This is to avoid any shortage of costs or any remaining money that can be set aside for savings.
3. Set Spending Limits with Income
Now that you know how much you’re spending each month compared to what you’re willing to spend, it’s time to set a spending limit. Start by budgeting mandatory expenses and subtracting them from your income. The remaining amount is what can be budgeted for your preferred spending or savings goals. What is budgeted for expenses should not be more than your income, otherwise you will find it difficult or you may even end up in debt.
By making this plan it will make it easier for you to use money wisely and not become consumptive, besides that, we can also reconsider the target of money and the time lapse in financial goals, you can also look for other sources of income to increase your income, in essence, the evaluation process can help us make a realistic budget.