Keeping records of personal finances can be a big challenge at first glance. Although we are aware of the larger expenses that recur from month to month, there are a number of smaller expenses that are a little harder to spot, so we can often have difficulty remembering what we spent all our money on.
However, regular recording of income and expenditure (or keeping a personal budget as this practice is still called) is very important because the benefits it brings are numerous. Not only does it provide us with detailed insight into the realistic presentation of our finances, but it also gives us the opportunity to establish control over them.
In addition, this habit helps us to define and achieve our financial goals. That is why budget management is the basis for personal finance management.
What is Budget Calculator?
A budget calculator is a tool that can show you in a simple way how to manage your income and expenses. It also shows how much money you spend each month and how it fits in with your income.
If you do not put on paper where your money “goes”, sometimes you will not even be aware of how much money has been spent on unnecessary things that you don’t really need. With the help of this calculator, you may learn that the best savings are, in fact, prudent spending.
Formula
Budget = Monthly Income – (Savings + Monthly Expenses + (Annual Expenses/12))
The formula is easy to use. The only thing you need to do is to put your info in it, so prepare all of your incomes and expenditures you have.
Let us help you understand it better with an example:
We will assume that your monthly income is $100,000, while your monthly expenses are $50,000 and your annual ones are $12,000. Also, let’s say you saved up $10,000 over the last 12 months. When you put it all in this formula, you will get this:
Budget = 100,000 – (10,000 + 50,000 + (12,000/12)) = $39,000
So, after calculation, you can see that your budget is $39,000.
How to Create and Manage the Budget
You don’t have to go into the smallest details when managing your budget – the most important thing is to keep track of your income and expenses, and you can group them as you see fit. In addition to this initial step, there are a few more tips that can help you keep your personal budget simple. Here are some tips and tricks to help you create and manage your budget:
Don’t rely on memory, write always
You can only remember your expenses in detail if you have very few. So write down everything related to your budget.
Be persistent and honest in budgeting
It is important to be honest when recording income and expenses and not omit small expenses that you assume will not be repeated, especially at the beginning of this process. Another important aspect of successful budgeting is to be persistent.
Monitor the budget and correct spending
After a few weeks, you will be able to peek into your budget. If you conclude that there is reason to worry, try to cut your expenses and spend less every month.
Is your income equal to your expenses? Do you have space to save? Are you already spending money you don’t have? At that point, you may notice the first obvious benefit of the budget. For example, you will find it harder to decide on something that can be categorized as a “waste of money” when you know that any such amount should be recorded somewhere.
Analyze costs
It is very useful, and interesting, to have fun and cost analysis in terms of wishes and needs. Needs mean everything that you cannot function without, and desires include everything that would be nice to have but is not necessary.
There is an interesting 50/30/20 split rule that you can follow. In translation – 50 percent of the money you spend on your needs, 30 percent on your desires, and 20 percent you can put aside and invest in your future, for example, savings.
Why Is Managing Your Budget Important?
Managing the budget helps us achieve the set financial goals, find the money we need to set aside per month for what we want and monitor whether we are on the right track all the time. If you ask an economist why you should keep a personal budget, he will tell you that it is important because it gives an insight into the real state of finances.
Another reason for managing a budget is to allocate the money you have according to priorities, which can help a lot in dealing with it on a daily basis. Recording income and expenditure is important because it shows whether we spend more than we earn. It also provides an answer to the eternal riddle – what we spent money on.
Probably a good part of us are aware of higher monthly expenses, but there are often those that we did not pay full attention to. A simple budget scheme will show whether we need to change our behavior in order to make our finances healthier and more certain.
One of the main reasons to manage your budget is that it will be a starting point for financial goals. Whether your goal is to save for a vacation, repay debt, pay life insurance, or something else, budget management will help you analyze your behavior and define what you are striving for.
Wrapping It Up
The budget is extremely useful for making a plan on how to achieve the set financial goals. Besides, it can help us determine how much money should be set aside every month. It is also a good way to monitor whether your finances are in order.
Although at first glance it may seem that managing a budget will limit you in the free disposal of your own money, with long-term practice, you will notice that it has the opposite effect. Budget planning actually allows you to be relaxed with money within the limits you set for yourself and in accordance with your needs and possibilities.