When you have to create your monthly budget, it needs something more than just doing some simple math. If you really want to make an effective budget, an analysis should be done on your earning as well as spending patterns for a period of time and a proper plan should be formulated. Here is how you should go about creating a monthly budget that is effective and efficient at the same time.
As you start making your next budget, you should first gather all the receipts, bank statements, and the statements of your credit cards for the preceding month. Now make different categories for all your living expenses like food, gas, utilities, rent/mortgage, loan payments, clothing, etc. Depending on all the gathered information, a practical estimate should be made for the amount which is spent under each of the given categories.
People often miss this easiest step and don’t write things down. The budget should be typed or written throughout the process. This allows you not to overlook any aspect and keep things as practical as possible.
It’s one of the most significant steps. It’s a form of ‘look ahead budgeting’ where you spend your money on a paper at the start of a month and then a specific amount is designated to each category accordingly. It’s an effective way to budget your finances for the month as you get a probable amount that you’ll be spending under each category and you put aside the money for that.
Organization proves to be the key factor for successful budgeting. It should be ensured that a system is there with you sticking to which you’ll be able to put a specific amount aside for a particular category. A popular way of doing this is the envelope system. Here you are required to put the designated amount of money for a particular category in an envelope and mark the envelope with the name of the category. This way you’ll only spend what is required for a particular category and won’t overspend.
You should take a proactive approach and keep refining your budget every month and remove any flaws from the preceding month. This will allow you to make the budget work for you and things will be more organized than ever.
Sources
http://www.moneycrashers.com/five-steps-to-effective-budgeting/
http://budgeting.thenest.com/create-effective-budget-4422.html
Tammy Richards is a seasoned finance writer with over 15 years of experience in the industry. With a keen eye for detail and a passion for helping people make smart money decisions, Tammy has become a trusted voice in the world of personal finance. Holding an MBA and drawing from her extensive entrepreneurial background, she offers valuable insights and practical advice to her readers.
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