Planning a budget is an easy task you can do to control your spending. The reason why we want to control our spending is because we have some goals or obligations that we want to make happen in the future. The main problem that you can encounter is that you don't know where you are spending and where you should be saving.
Budget is a way to solve that problem. Most people do some kind of budgets but they don't reap the full benefits of it without knowing the essentials of budgeting. Lets be honest the only reason you have started thinking of budgeting is because you are earning more than enough money and you don't know how to spend it.
Today is your luck because in this article i will be sharing some financial secrets with you about budgeting and a concept that will make your Life easier.
There are two broad ideas that come into our mind when we think about budgeting. What budget did i make? and What actual did i spend? Both are important because you need to do a budget every month but main problem that comes into mind that it can be complicated and time consuming. Both are rather far from actual truth.
Let me explain;
For most salaried person who have only one source of income, for them budgeting would be quick but for people who are spending in investments and earning money from other sources it can become complicated especially business or celebrity people who don't know where their cash is coming from. They might need to hire special finance managers to help them with their money. But for you, most of the people, budgeting could be quick and helpful.
How to start Budgeting?
First of all let us gather main heads for budgeting. Budgeting should be based on months to make it easier and there is no strict rule, meaning that close to estimates figures for your budgets are totally fine as long as they are correctly calculated.
This would include your: Salary(monthly) plus other income from investments. If you get salary in weeks or your investments yearly, then you can divide or multiply those figure to get your monthly figure because we are doing monthly budgeting and we only need monthly estimated income.
This would include only those spending that you do monthly. This would include your groceries, rent and other miscellaneous that you are 100% sure that they are going to be incurred every month.
You must have savings otherwise there is no need for doing any sort of budgets! The reason is that the main purpose of budget is to help you make saving or else its useless. So please try to make some saving or better investment to earn some other income.
4. Capital Expenditure/Investments
This would include all those products that you buy having long term use(more than 1 month). There is special concept behind it that i will discuss below.
Let me summarize the whole concept. There are 3 monthly heads which we will discuss first.
Suppose you are earning Salary $5000 and some $500- 600 from some investments you made in the past. So your total salary would include $5500 because we don't want to overstate our income.
Lets suppose your monthly expenses on groceries come out to be $1500($700 included here) including your dining out which includes somewhat $600-700. Also you are paying rent of $2000. You total expenses would be $3500.
Suppose that there are no miscellaneous that you spend. So your total savings come out to be $2000.
Now the real concept begin, Suppose you know there are some expenditure you are going to make in lump sum in the certain future then you must be saving for on a daily basis. This divides your saving into like this: $1000 for house, $500 for car, $200 for a yearly trip and $300 for emergency purpose.
Whenever you will have some other future obligation, you will have to make more savings by cutting your variable essential expenses.
Some time we are looking to buy something and we have the money as well but it would just take away all your saving so how do you decide whether you should buy it or not.
The concept of deferring expenditure provides a new way of thinking your capital expenditure. Which is basically dividing the total cost of that product over its useful life(the time period which you are most likely to use it for). Two main thing you should consider is : THE IMPACT ON YOUR EVERYDAY LIFE / ANY INCREASE IN EFFICIENCY WHICH WOULD LEAD TO MORE INCOME
Suppose you like a Ergonomic Chair but it costs $300 and then there is another chair that cost $100. You obvious answer would be the $100 because you want to increase your saving. Which is Wrong because the first chair comes with 10 year warranty and the second chair comes with zero warranty but it is estimated that it will last at most 2 years. We do some simple calculations for it:
1. $300/10 = $30/yr
2. $100/2 = $50/yr
This is what you should be always mindful about, THE USEFUL LIFE, because if we have things that are good quality build and last for longer period of times then they obviously would cost less to us and increase our saving in the long term even though it may look like we have spend more which is far from true if you have the bigger picture.
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