Not many people could answer this question. Why? Because many people do not have budget in place. There are several reasons why one may not have a budget. Perhaps they are not sure how to create one, just don't know where to start or unsure of what to do with a budget (or how to use it).
This guide will help in understanding and getting started on creating and learning how to maintain a budget or expense plan.
What is a budget?
A budget (a.k.a. expense plan) is a plan used to decide the amount of money that can be spent and how it should be allocated. It's purpose is to account for all available funds as well as itemize expenses. A budget is a great informational tool that can be used in many situations and assist with everyday accounting. It can (and should) be updated as changes come along, as they often do.
Who should have a budget?
Everyone should have a budget; no matter the income/tax bracket or indebtedness. Each individual with income and/or spending as well as a separate combined household expense plan.
Why should I have budget?
It is important to create and keep a budget because knowing exactly how much money is coming in and flowing out will help you to:
*become and (hopefully) remain more organized.
*notice where changes can or should be made.
*keep up to date with bills and stay creditworthy.
*detect mistakes, identity theft, or potential fraud.
*save money!
When should I make a budget?
Make a budget now and review it often.
As life happens and changes occur, update and adjust your budget. This may be as:
Income Changes
-pay rate increase (promotion, career move, merit raise, additional employment, etc...)
-pay decrease (demotion, job loss, layoff, cutbacks, retirement, etc...)
Additional Debt is Incurred
-new purchases (car, home, laptop, groceries, gas, etc...)
-emergencies (medical or otherwise)
Decrease in Debt/Obligation
-lowered balance by a little or by a lot (monthly payment, principle payments, overpayments, etc...)
-satisfied obligation (paid off balance, settled for less than full balance, etc...)
What do I need to include in my budget?
Everything.
Seriously. All incoming and outgoing funds need to be included.
Income
Every bit of income received from all sources should be listed.
This may include: employment (paystubs, W-2, 1099), unemployment (paystubs,1099), retirement (statements,1099-R), pension (statements, 1099), disability (award letter,statements), worker's compensation (award letter,1099), dividends paid, rental income, earned interest (1099-INT, statements), business income (balance sheets, receipts), rebates/refunds/rewards (1099), and several other sources.
Include the source, gross amount (before deductions), net amount (after deductions), and frequency.
Debt
All debt listed on credit reports should be listed.
This may or may not be painful, but all open accounts (including zero balances with available credit) need to be included along with the minimum payment amount, balance, and credit limit.
It may also be useful to include the APR/Rate being charged and the opening date of each account. (The use for these pieces of information and credit will be covered in a separate post- subscribe for updates and new posts.)
Expenses
Each household bill, any other obligation and all other expenses should be listed.
Expenses are different for each individual depending on a number of factors. Keep this in mind as you make your list of expenses. Try to think of everything you do in a day. Include every purchase made, toll paid, donation to charity and everything in between. Many daily or monthly expenses are overlooked when creating a budget. For this reason, it is important to ask for and keep receipts (even for cash transactions). If you are just not good with receipts: keep a transaction register or notepad handy. Cell phones are also a good plCollect information for full calendar months and/or years to get an accurate picture of your total spending.
Assets
Assets are things of value that are owned.
Liquid Assets can be converted into cash quickly and easily.
Non-Liquid Assets are not as quickly or easily sold and converted to cash.
(Liquid and Non-Liquid Assets should be listed but kept separated.)
**Some stocks, bonds and retirement accounts can be considered in either category depending on several factors
*These examples are for illustration and are not meant to be all inclusive.*
What's Next?
Now that you know what you need to have in your budget (your entire life - on paper) and have it all gathered in front of you, the next step is to put it all together into an easily readable format.
Subscribe or check back for the next segment: "How to Plan and Create a Budget".
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