A financial budget is a tool that can help you reach short- and long-term goals. Whether it’s saving for an expensive vacation or paying off your credit card debt, a budget will make it easier to stick to your spending limits.
To create a budget, start by gathering your financial documents and tracking your expenses. Use your bank and credit card statements to identify fixed expenses and variable expenses that may change from month to month. This can help prevent you from running into financial problems. If you do find yourself needing help, bankruptcy lawyers in harrisburg pa can help you get back on your feet.
Start with your income
Identify the amount of money you typically bring in on a monthly basis. This may include wages, salaries, tips, benefits, investments and other sources of income.
Determine your normal monthly expenses, including fixed costs like mortgage or rent, utilities and transportation fees as well as variable expenses such as food, clothing and entertainment. Account for any debt payments you have, too.
If your pay fluctuates because of varying hours or commissions, consider using the average of the past three months. When you have the numbers in hand, subtract your necessary expenditures from your total income to see how much is left over for other spending.
Set financial goals that are attainable, whether it’s paying off debt or building an emergency savings fund. Aim to save a bit more than you spend, and be sure to factor in periodic re-evaluations. Tracking your spending and setting financial goals will help you stick with your budget over time.
Separate fixed and variable expenses
In a budget, fixed expenses are those that cost the same each month or year, such as debt repayment or mortgage or rent payments. On the other hand, variable expenses are those that vary in cost or occurrence and include things like raw materials and hourly labor.
In some cases, these costs may be tied to production output or sales volume, but in other situations they can be more discretionary and include items like dining out or entertainment spending. Taking a close look at both kinds of expenses can help you identify patterns and make changes that will improve your finances.
To determine your average monthly variable costs, consider each category individually and add up the amounts you spent in each area over a period of time to get an idea of what you typically spend on a monthly basis. This will give you a sense of how much you can expect each month to spend on these types of expenses and will help you create a budget that accounts for them.
Create expense categories
The more comprehensive your expense categories are, the easier it will be to identify and prioritize spending goals. For example, a greeting card company may have separate categories for shipping and storage costs, while software-as-a-service
(SaaS) companies might have a category for digital services.
Expense categories allow you to classify expenses based on why and how the expense was incurred. This gives a clear picture when running analytic reports and also helps to set budgetary limits.
FreshBooks provides a default list of expense categories that are mapped to nominal accounts in the Chart of Accounts, which is included on all plans except Basic. You can create additional expense categories and even subcategories to further break down your expenses.
When expense submitters upload expenses through our mobile app, they can select a category from this simplified default list instead of having to know or enter the corresponding account code. This reduces errors and ensures the accuracy of expense reporting.
Set spending limits
Many people find it difficult to stick to their budget. But a budget can help you figure out your financial goals and work toward them.
A financial budget estimates revenue and expenses over a period of time. It helps businesses plan for future needs and make informed decisions about spending.
Examining your spending history can help you finesse exactly how much money to set aside for day-to-day shopping, says Jill Emanuel, a financial coach with Fiscal Fitness Phoenix in Mesa, Arizona. It can also help you figure out whether you need to save for irregular purchases that don’t fit into a fixed bills category, such as pet costs or home improvement projects that improve resale value.
It may take a while to get used to the discipline of using a budget, but it can help you stay on track. You can use a credit card that offers spending limits to keep you from going overboard, but this may damage your credit score and could lead to higher interest rates in the future.