How to Make a Great Budget

You’ve obviously made a personal budget before – probably more times than you can remember. In fact, even a first grader makes a mental budget for the money that he has been given for spending. However, what we are talking about here is an extrapolation of the first grader’s budget. The principles are the same – getting the most out of the least amount of money as possible. However, things are a bit more complex here – you are budgeting for probably more people than you. And unlike a first-grader whose choice of goods is limited, yours are pretty unlimited. There are practically an unlimited number of items you can buy.

But what is the simplest way of making a great budget?

- List your expenses

The first step to making a great budget is making a list of all your expenses. Don’t fall into the all common trap of rushing to write down your income and then look for ways to spend your money. The likely end of such an approach is that you will end up buying a lot of this which you do not need, but which you “feel” you must have.

Where were we? Okay, list your expenses. Don’t mind how long the list becomes. Go through the list once more and arrange the expected expenses in terms of priority.

-List your investments and savings

Once you have listed all your expenses, a mental check will probably tell you that your budgeted expenditure is much more than your income. It therefore would make little sense to define your savings as “what is left when I am through with consumption.”

Again, if you are waiting to get some extra cash before you may invest in something, then you’ll wait for eternity. The essence of budgeting for your savings and investments is to ensure that you have enough money for a rainy day and that you are developing alternative ways of increasing your income. New methods of investments may help you to cut your over-reliance on your current income source. The amount of your savings and investment should be dependant on your income – get a formula for determining this.

-List your income and income sources.

It is now time to list your income sources. Ensure that the list does not have issues relating to borrowing for the sake of consumption. Once you know how much money is available for spending (after deducting the money needed for savings and investments) you can now review your expenses. Cut out expenses that are not necessary and see how else you can save money by buying less of a certain commodity, or at a cheaper price than originally budgeted.

The budget making process is a critical one if you have to achieve your personal financial goals. Without it, it may be very difficult to know where you are coming from and where you are going to. Ensuring that you follow the right steps is key to seeing the success of your budgeting exercise. However, it should be noted that there might be other variations of the budgeting exercise. The principle though remains – get the most out of the least sending, and only spend when you need to.