What lies behind the words “get out of the minus” or “live off what is”? The answer to this is Balancing expenses and income. Such a balance can be achieved and using a budget can help with this.
Think of these words: “building a budget.” They sometimes roll in your mouth as a new and unfamiliar word. Why? Because in school we were taught a lot of important things: history, math, language – but one important thing they didn’t teach us: how to manage financially and how to build a budget. Forgot. The main thing is that we learned the Pythagoras theorem. Not too bad what we didn’t learn then, you have a chance to complete now. And our first message is: proper budget construction should be done in stages.
So let’s start from the beginning.
What is a budget, anyway?
A budget is a tool used to set a home’s economic goals (expenses versus income) on a monthly average.
The construction of the budget is carried out in several stages:
- Prioritize
- Building an initial budget
- Inspection and control
- Fixing and improving your budget
1. Set priorities
In order for us to achieve goals, we must first set them. Just being aware that priorities need to be set is the first step. Most of us go about our financial lives with day-to-day expenses in mind. The focus on ongoing conduct often diverts us from the goals and dreams that are really important to us.
In order for us to build a budget that takes into account what is really important to us, we need to define our priorities, each family has its own priorities, a “budget preparation tool” can help with the job. In this document you will define what expenses are important to you and it will serve as a basis on which to build a budget that suits you.
- Break down your income and expenses today. Check the gap between expenses and income.
- Decide which items you can reduce so you can strike a balance between income and expenses.
- In each section, fill in the level of difficulty required of you in order to reduce your expenses (“easy”, “difficult” or “untouchable”), considering the amount you spend today.
- In the sections in which you have decided that you can reduce, you will be required to define a new amount (monthly average), according to which you will manage during the coming year.
At first glance, you may feel that you are unable to reduce expenses, but usually, at second glance, you will find many items of expenditure in which you will be able to become more efficient and reduce. A similar process should be carried out in the income sections, with one difference – there we are not looking for ways to reduce but options for increasing income.
No less important: in order to maintain domestic peace and not just manage the household efficiently, if you live in a couple, each of you must examine where he himself can help reduce expenses, and not look for places where your partner can do so.
2. Building an initial budget
- Write down a budget for each item – After examining your options for reducing expenses, write down the amounts you agreed to in the budget column of the expenses and revenue form. This is your budget for the upcoming period.
- Summarize everything – summarize total expenses and revenues in the budget column.
Pay attention to the categorization in the expenses column: fixed monthly expenses, periodic expenses and current expenses.
3. Testing
After summarizing the amounts in the monthly expenses and income columns, check whether you managed to reach a balance (a reality in which total expenses do not exceed total income). If so, you’ve got a budget that allows for balance.
4. Correction and improvement of the situation
If you haven’t reached balance yet, repeat the steps above until you’re fully balanced. In many families, this process is done in stages rather than all at once: In the first stage, the monthly deficit is significantly reduced, and after a few months, a new budget is built again, which will close the deficit and even leave an amount to deal with debts or savings. The more the final budget is designed to leave more available money, and the earlier the final budget is determined, the faster the process will progress.
You have built a budget, and in the next stage we will examine how to live according to it.
