Budgeting can be defined as the process of setting and maintaining financial objectives and plans. A budget is an effective system for a specified period, usually one year. It can also consist of planned short-term sales volumes, revenues and expenses, resource levels, costs and payments, assets, liabilities and funds flows. The key to effective budgeting is setting and sticking to realistic goals and objectives while looking at the big picture.
Budgeting helps to control expenditure and encourage wise spending by controlling opportunities and ensuring that expenses do not exceed planned ones. Since the budgeting process is aimed at achieving specific spending goals, it is very important to develop a set of clear-cut, specific and detailed budget goals. It is best to discuss with the other members of a family before setting out the budgeting targets. The family can be a good guide to help ensure that the financial objectives of the budgeting process are properly set.
Some of the main factors that affect the development of a budgeting plan are: the current income and the current expenditures, both of which have to be estimated and compared with the existing background information. For budgeting to be successful, there should be enough money to spend or budgeted for. Household allowances and deductions should be made for planned activities and not for emergencies. You can also consider where you get to spare the changes. For instance, your internet plans might be free as part of free phone plan of government subsidies (check enTouch Wireless to learn more). It is also important to set and maintain realistic household income and expenditure ceilings. The level of total disposable household income should be equivalent to the income or disposable household expenses over or above a particular period of time.
In order to have a proper budget, household expenditure should be balanced between required and desired levels of expenditures. Households should record all their income and expenses on a regular basis and calculate their debt repayment status on a monthly basis. Households should also develop and maintain a budget for debt repayment. Debt repayment includes: debts owed to others, mortgage, car payment, and any other loans including student loans. The purpose of developing a budget is to guide individuals from taking on more debt in an effort to pay off previous debts. It is also important to be able to determine an individual’s eligibility for budgeting.
Budgeting requires that the members of the household work together to make a spending plan. In creating a spending plan, all household income and expenditures should be recorded on a daily basis. A household budget should include household asset allocation, setting aside funds for emergencies, and identifying possible savings opportunities. Households should also create and follow a written budget. The creation of a budget is most effective when it is prepared weekly and reviewed monthly.
Budgeting helps individuals to plan for future living expenses and achieve a set of financial goals that they can work towards collectively. By setting and sticking to household spending goals, budgets can be used to influence other areas of family life as well. As with any budget, it is important to remember that anyone can benefit from the use of a budget. It can be used to eliminate debt, achieve financial goals, and plan for the future.