One of the best practices for improve the health of our personal finances is to make a budget. Having a budget is so important that even large companies, as well as governments, plan their own budget; but what is it? And above all, how is it done? This article is intended to serve as a general guide on how to make a personal budget, so that our finances improve.
What is it and what is it for?
A budget is a plan in which both our money inflows and our outflows are recorded, so that as a result it gives us a planning of where our money should go. economic resources, and above all it helps us to be aware of whether they exist some capital flight or certain expenses That sometimes mean that we cannot save or that we even lack money to be able to cover weekly or biweekly expenses.
The budget has a record of each of the occasions in which there are outflows of money; The reason why this must be clarified is because when we do not consider all our cash outflows, there is usually doubt about why we do not have enough money at the end of the month; and in many occasions it is that the money comes out in some snacks, in soft drinks or in outings with friends. And if there is no correct planning on this, it will be very difficult for our finances improve.
Then the budget helps us to control our money inflows, as well as to control our expenses; and by controlling we mean that as the month passes we will already know what we can and cannot spend our money on. But it is not only useful for this, a budget will also allow us to observe the current deficiencies of our money control and then make a planning to, for example, pay debts or to save to be able buy that house or that vehicle that we want so much.
Now that we know what possibilities the budget offers us, the most important question comes: How is it done? The next section will be in charge of explaining how it should be done a budget and how to interpret it.
Making the budget
According to what we analyzed in the previous section The budget is based on two main things, the inflows of money, and the outflows of money. So in order to make our budget, the first thing we need is to make a list with all the money inflows that are planned, for example, if we have a salary of 1500 euros, and a rental income of 300 euros, we will write them down to be able to make the final sum, which in this case would be 1800 euros. If you only have one fixed monthly income, our salary, must be considered as what it is, a single input value.
The next thing is to make a list with all money outflows, or planned expenses; for this step we must do the following. First, the expenses that we know to be covered during the month are listed. Here we must include, for example, expenses such as payment for mobile services, internet, we also have to include credit or mortgage payments; now comes a slightly more complicated part, and that is that until now the expenses are determined, that is to say that month by month we have to pay an exact amount of our services or plans while there are expenses that are less exact, such as expenses on food or gas for the car.
For cases in which we do not know exactly how much money we are going to spend on our pantry, what we have to do is calculate an approximate amount of expenditure that we make per week, in this way we can make a more exact calculation. And to avoid that our calculation has been less than the real amount, it is convenient that 10% be added to the amount that resulted, in this way we can absorb the unplanned expense in a way that does not affect the rest of our budget. and that our planning scheduled payments.
Another important point to consider in our budget is the expense for home maintenance, or the chunk, as well as the payment of taxes and clothing expenses; It is important that even if we do not go to buy the same amount of clothes as the previous month, we have a certain amount of money already earmarked specifically for said objective, so that if this month we do not spend the entire clothing budget, for the next month we can either spend that month's budget plus savings, or keep saving.
Let's analyze the current budget
Once we have the two main amounts, the income and the total expenses, it is important that to interpret it we compare these amounts; There are 3 situations, the first and the least common is that our income exceeds our expenses, and when we say that it is the least common we refer to the first times we make our budget, because the purpose is that over time we reach this situation, in order to save.
The second situation is when our income equal to our expenses; This situation is really good, however, it is not the best, since the end of the month we will have nothing to save. And the last situation is when our expenses exceed our income; this is the most common, and the main reason is that we do not have priorities.
The second issue that we must look at in order to interpret our budget is in debt payments, since these are the ones that usually cause the most problems in addition to representing the majority of expenses in the budget. So here we have a problem to solve, debts.
The third question that we have to take into account is to see if we have priorities in the budget, we will notice this by comparing the individual expenses With respect to the total expenditure, in this way we will be able to know which aspects are being given a greater budget; and once we have this well defined, it will be important that we personally analyze if the amounts that represent the highest percentage are really essential or if we can reduce them, a matter that will be discussed later.
The future budget
Now that we have an idea of what we spend and money What we do month by month, and that we have analyzed our budget to be able to set areas of opportunity and priorities, it is of the utmost importance that we plan how we want our budget to behave in the future in order to be able to save.
The first thing we have to consider are our priorities, in order to keep our unnecessary expenses out of planning. Some of our priorities may be debts and expenses for rent or food. Once we have our priorities well established, we will have to calculate the future budget, and in this way we can achieve our first surplus. Now let's move on to a very interesting topic, debts.
The second thing to solve is the debts we have, it is important that when making the new monthly budget we keep in mind that, if we we pay money To the principal of our debts, the monthly expenses decrease, in addition to that the amount of interest that we will have to pay will decrease. In this way, you have to make a list with all the debts, once we have this list it is important to write down the amounts that are owed, the term in which they must be covered or settled, and finally the interest rate. As a tip, the first debts that have to be settled are those with the highest interest rate.
That is, if we have three debts, the first with a monthly payment of 5 euros to pay for 12 months and with a rate of 3%, the second with a monthly payment of 10 euros to pay for 8 months with a rate of 5% , and the third with a monthly payment of 12 euros to be paid in 24 months and without interest; and our income is enough to cover the 3 debts, and we have extra money left, the most advisable thing is to pay that extra to the first account, which is the one with the highest interest rate. Once this is settled, we will pay the 10 euros of the second debt, plus the extra money, and in this way we can more easily settle our debt and thus improve our budget and our finances.
Once we have solved or planned the payment of our debts The next important point to consider are ant expenses, those that go almost unnoticed, such as tips or occasional expenses on snacks or a craving such as ice cream. Controlling these expenses is very important because when we add up all these small expenses the resulting amount is usually considerable; Take into account that reducing and better controlling this type of expenses will allow us to give priority to some matters such as the payment of the debts that we have.
Once we have our planned budget, it is important that we learn to control it, that is, we have to comply with it so that we can save and reduce our unnecessary expenses.