How to properly calculate your budget

Read smart steps to organize your finances properly
Creating a personal or family budget is no easy matter, but it’s essential, and it’s the most effective way of controlling your finances.

Step 1: Planning

The first step in drawing up a proper budget is to gather every single aspect concerning your financial obligations. Simply put, the income and expenses shaping your everyday life. 

Utility bills: electricity, water, telephone and internet bills, and credit card payments
Life and car insurance
Fixed costs: rent, gym membership payments, tuition costs, gas, etc.
Analytical bank statements
Receipts for high-cost purchases
Tax return

 

Step 2: Track your spending

Once you’ve gathered all your bills, make a thorough list of all your expenses. It needs to be as detailed as possible, to create a comprehensive picture of your daily expenses. If this proves too challenging, maintain a shopping diary, entering all purchases and costs, from clothes and road toll charges to all petty costs, even if these seem trivial. 

Noting all expenses is crucial when creating your first few budgets. The outcome of this procedure at the end of the period you’re monitoring can surprise you and will prove useful. Ideally, keep tracking your expenses for an entire month, until you have a clear picture of your daily expenses. The procedure may help you avoid wasting small amounts of money on unnecessary items, which, prior to your budget, may have seemed harmless.

 

How to calculate your budget properly!

Step 3: Organization plan

Once you have a full picture, prepare a management plan, using all the information you have gathered.

At this stage of the budget procedure, you know what your expenditures will be and which spending habits you need to cut down on. You also know what your actual income level is, whether as an individual or family. 

Ideally, try to prepare a year-long schedule, offering wider scope for your financial planning, as expenses can vary from month to month. 

This will help you create categories grouping: 

  • Income sources: work income, rent income, and any bonus payments
  • Fixed expenses: rent, utility bills, financial obligations, children’s expenses, food, car expenses etc. 
  • Occasional expenses: gifts, repairs etc. 
  • Personal expenses: haircuts, clothes, gym etc. 
  • Vacation expenses
  • Entertainment

You may want to estimate slightly higher amounts for certain preplanned purchases or expenses, to avoid any unpleasant surprises. Be as foresighted as you can.

Step 4: Doing the Math

Once you’ve added up all your income sources and expenses, you’ll have a clear picture of your annual inflows and outflows for the year. Comparing the two will determine how you need to manage your finances, which may include cost-cutting, a transfer of expenses to other months, the creation of installments, etc.

Organize your entire year month-by-month to be as prepared as you can to meet obligations without setbacks. 
Or you may prefer to create monthly budgets at the beginning of each month as guides for avoiding financial mishaps.

Budgets help guide your actions, enable you to recognize what you can and cannot do, indicate where cost-cutting is necessary, even if temporary, so that you can meet your overall obligations. Sound financial management is important.

Proper planning will help in controlling your finances and, ultimately, your life.

 

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