When it comes to money, most need help managing it. To have an adequate budget, a debt-free life, and financial freedom, you must understand expenses and where your money is going. Understanding your costs, non-essential spending, and where you can reduce expenses can lead to the financial freedom every financially responsible person hopes to achieve.
To get a complete picture of where your money is going each month and an understanding of the expenses, you must create a budget. Generally, a budget is monthly. However, it is suggested that you also have a yearly budget with financial goals in addition to your monthly budget. Here is everything you need to know about creating a realistic budget.
Spending Categories
First, you need to establish spending categories according to the expenses and payments you know you will have. These categories include your mortgage or rent, insurance, gas, electricity, water, phones, Internet, gasoline, maintenance of the car, credits and miscellaneous payments, food, clothing, school supplies, leisure, health, personal care, and everything you know that you must pay, as well as a section that you will add and that you will call unexpected expenses.
Unexpected Expenses
To this section, you will assign a small amount (for example, $50 per month) that you will leave behind for any expenses not included in your spending plan.
Some of these expenses are known in advance, and others are not. During the seconds, you will try to make a forecast as tight as possible, always trying not to be optimistic (do not expect excessive payments to the downside). You will be prudent, and it will be better to calculate higher costs that later turn out to be lower than expected rather than to fall short in your spending forecasts.
Minimum Expenses
You can also establish for other expenses, such as food or clothing, a minimum that does not mean losing your quality of life; that is enough to live well, but you will try not to exceed (for example, you can put a limit on food that does not involve buying little food but avoid unnecessary whims or expensive brand products).
Expenses Vs. Income
Once established, the forecast of expenses increases by 10%, and you will confront it with your income. As often happens, there will be no significant problem if they are known beforehand.
If your income is variable, you will also make a forecast here. But to be prudent, if you do not know your income with the security, you will sin of pessimism and put a restrained amount. One method could be to use the average of the last twelve months unless you have more data that allows us in advance to know the amount that you will charge approximately (for example, someone who charges by commissions will understand if that month is selling much or minor). With experience, it will be easier to make the spending plan and adjust the forecasts more.
More Income Thank Expenses
If the income is higher than the expected expenses, you will have a surplus of money, which, if the forecast is well made and covers all costs, you can allocate to reduce your debts and credits. If you did not take control of payments, it is money that you would certainly spend on other unnecessary things.
More Expenses Than Income
If, on the contrary, the income is less than the expenses, you will have to reduce some expendable costs, such as the telephone, Internet, clothes, etc. You will have to spend less to balance the spending plan.
If this situation were repeated several months in a row, it would be a good time to rethink your position and move to take deeper measures, such as rent instead of paying a mortgage, changing jobs to get a better income, trying to reduce consumption, etc.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
