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How to Make a Budget

A household budget can take on many different styles and shapes depending on who you are and what you need your budget to be capable of achieving.

The three key steps of a budget as follows:

STEP ONE: Estimate the amount of regular and irregular income per month.

STEP TWO: Divide your income among the following:

  1. All anticipated expenses and amount needed for each expense.
  2. Amount required for repayment of loans, if any.
  3. How much you want to save to meet short-term or long-term goals

Your monthly list of expenditures should provide you with a plan which incorporates expected and possible expenditures. After deciding on your expenditure categories, you and your family must decide on minimum percentages for each category. As people go through different stages of life, their household expenditures will differ. The challenge is to not only incorporate all your actual fixed expenses while staying within your income and saving for the future.

STEP THREE: Calculate whether your estimated total income is enough to cover total spending.

If income exceeds expenditure, you have a budget surplus. It is very tempting to go out and spend this surplus by treating yourself or your family. The important thing to remember, though, is that you should save this surplus income to spend during times when income might be lesser or expenditure will exceed expected expenses.

If expenditures exceed income, you have a budget deficit. It is very important to remember that everyone, whether salaried individuals or business persons, have some months when they might go into deficit. The idea is to prepare yourself for these months using your financial plan. Another thing which might help is to spend less during the low-income periods.