Budgets are an essential tool to managing your money whether individually or in a business.A budget is an estimation of monies in and out (income and expenditure) over a defined period. They give a in depth understanding of what money is owed and where money is spent.
With increases in utilities charges announced this month and the VAT increase in January 2011, monitoring your expenses now can reward you with long term savings.
A budget can be created by following three simple steps:
Monitor your spending
This first stage is key. To understand what you spend it is essential that you first determine what money you are spending.
The easiest way to do this is to track your expenses for at least 1 month and jot everything down. Most smartphones now have a diary function, or carry a small notepad and pen – everything should be recorded no matter how small. Request receipts for everything, even that quick coffee, and file it all away with your spreadsheet.
At the end of the day think back over where you went and any cash payments you may have made and forgotten about. If you knew how much cash you had with you at the start of the day – add up how much has been spent and make a note in your spreadsheet / diary if you have missed anything.
Evaluate your spending
Next its time to look at what you spent over the last month. Break your purchases into essential and non essential items. Be strict and only put items on the essential list if they are required for living i.e. water, gas, electricity, council tax. Receipts may have to be split between the two categories especially with food shopping.
After this it is advantageous to see what expenses are fixed (and for how long) and what expenses are variable. Example of fixed expenses are mortgages, insurance, loans, where as variable can be items like petrol, car maintenance.
Forecast your spending
Non essential expenses can be a high percentage of wasted income. Forgotten subscriptions, uneaten food, wasted rental fees or charges – these are all areas where money can be saved.
After you have defined your income minus fixed expenses you are left with your disposable income. Give yourself a percentage allowance for non essential items with the balance going to paying off debt or investing in savings.
Spending beyond your limits is dangerous but quite easily done – managing a budget can save you from having any nasty surprises.
Elizabeth Salutini has worked within a finance role in the property sector for over 7 years, managing company budgets, tax liability, income and expenditure of SMEs with turnovers of up to £3.2 million.