BUDGETING AND MONEY MANAGEMENT

Why is Budgeting and Money Management Necessary?

Budgeting and money management as stated above refers to the process of controlling where or when to spend your finances. Money management is important for you to help you avoid problems in terms of your finances for example, budgeting and money management will help you organize and control your money expenditures. Good money management can also help you avoid debt.

CREATING AND MANAGING A BUDGET PLAN

Budgeting shows how much money you have coming in and how those funds are spent. It is one of the most important tools in building a successful financial future, because it helps you get the most of your money.

In creating a budget plan, there are four basic ways to create. Each systems have different techniques but has one goal. It is to organize and create your budget plan successfully.

NOTEBOOK AND PEN

It is one of the oldest method for budgeting and has the least expensive option. In using this method, you can just simply write down all your sources of income and all of your expenses. If they're balanced, it is a good indicator of good budget plan.

2. THE SPREADSHEET

Microsoft excel is one of the most popular spreadsheet software for budgeting. A spreadsheet helps you to organize a lot of information and can easily do the mathematical computations for you.

3. FREE ONLINE SOFTWARE

Several free web-based software programs that can help you with budgeting. Manilla and Mint.com allows you to create and group your expenses into categories and track your spending. You can see exactly where your money is going as soon as the transaction takes place.

4. FINANCIAL SOFTWARE

In programs like this you need to be computer savvy in order for you to use them.

Now that you have the knowledge about the basic ways to create a budget plan we can now move to the steps in creating a plan. So here are the five steps to create your budget plan.

STEP 1: SET GOALS

You need to determine which goals address necessities and which one cover luxuries.

There are two types of goals; immediate and long rage. Immediate goals focuses on using your money today while long range goals deals with saving and spending over decades. Immediate goals include covering current expenses, some of these are obligatory and includes your mortgage or rent payment and such. Long range financial goals could also include retirement saving, investments and charitable donations.

STEP 2: CALCULATE YOUR INCOME AND EXPENSES

After determining your financial goals, you need to plan to reach them. In order for you to do this, you need to evaluate your income and your expenses. Start by making a list of your monthly income sources, including your salary. Once you have your numbers, add them up. The total is your monthly income.

The next part of the equation is your expenses, which fall into three categories: fixed committed expenses, variable committed expenses and discretionary expenses.

- Fixed committed expenses: These have a fixed monthly amount, such as your mortgage or rent.

- Variable committed expense: These vary from one month to the next month based on need, and would include groceries and gasoline.

- Discretionary expenses: As noted, these are optional expenses and include recreation and entertainment. A gym membership would also fall into this category. Discretionary expenses often make life more fulfilling, but they should be the first expenses to go if you can’t afford the basics.

STEP 3: ANALYZE YOUR SPENDING AND BALANCE YOUR CHECKBOOK

The goal in budgeting is to make sure your expenses do not exceed your income. If they do, and more money is going out than is coming in, then you need to make adjustments. This doesn’t necessarily mean you need to start penny-pinching; it just means it is time to revisit the discretionary cost category and see where you are willing and able to cut the fat.

STEP 4: REVISIT YOUR ORIGINAL BUDGET

After you’ve had a chance to monitor your income and expenses for a month or two, you will be more aware of areas that need adjusting. Maybe your initial monthly income estimates were off, or perhaps you didn’t account for expenses like car repairs or veterinary bills. Make adjustments, but always balance inflows with outflows.

STEP 5: COMMITMENT

Creating a budget is a great step in working toward a more financially sound future for you and your family. Committing to your budget will get you there. Remain realistic, evaluate it often and don’t be afraid to adjust. Budgeting is all about balance.

WATCH THIS FOR MORE

This short animation give more insights from the DTI Phillipines

STEPS TO MANAGE YOUR MONEY

HOW TO MANAGE YOUR MONEY LIKE THE 1%

WHAT IS BUDGETING

TRACKING INCOME AND EXPENSES

Keeping track of your spending is the best way to stick to a budget. Building a budget is one of the best ways to start tracking your spending, as well. The two are highly related, and depend on one another for personal finance success.

HOW TO START TRACKING YOUR SPENDING

If you’re ready to start tracking your spending, check out these tips to simplify the process. All of these will help you get a better view of your finances, as well as your spending habits.

Step 1: Segment Your Spending Methods Into Categories

Segmentation is a great way to start reviewing what you spend every month, as well as how you’re spending it. You should track purchases made with cash, a credit card, or a debit card.

Step 2: Download an Expense Tracker App

There are plenty of UK expense tracker apps that are available that will make keeping track of your spending much easier. An example of this is Lumio. It was recently picked out in 2022 by the Metro and Technation as it allows you to track and control all your bills, savings, and investments in real-time. And it’s totally free.

Step 3: Separate Business Expenses and Personal Expenses

separating your business and personal expenses is a key factor when it comes to tracking your spending.
Tracking business expenses should be done for two reasons; it’s a good way to keep track of business write-offs for tax purposes, and it’s an excellent way to separate your business and personal lives.

Step 4: Make a Budget, and Stick to It

By tracking your spending first you can come up with a budget that is true to your spending, and it can show you where improvements can be made.
When tracking your budget, try to categories specific purchases into the following categories:

Living Expenses: This should cover any costs that you have when it comes to your home. Rent, mortgage, insurance, home improvements, etc. These are all part of your living expenses.
Utilities: Utilities are a secondary cost related to living expenses. This should include your energy bills, your water costs, and your phone service.
Travel or Vehicle Expenses: Any expenses related to your car can be categorized on their own as well. This includes car payments, insurance, or the cost for gas. Travel expenses can also include airfare, bus fare, or any other form of transportation.
Food: Food and other items you can get at a grocery store can be categorized as a single area of spending.
Entertainment: Entertainment should include any recreational costs that you have. This includes streaming services, tickets to events, etc.
Savings or Investments: Any money that you put away on a monthly basis should be taken into account as well.

Step 5: Track Your Spending by Store

If you have a problem spending too much in one place, creating a micro budget can help you curb your bad habits. Take a look at how much money you typically spend there, and then turn it into a realistic figure.

NEEDS AND WANTS

In finances, needs are the basic necessities for human survival and nourishment. These are the kinds that marketers and business did not create.

On the other hand, wants are basically the customer’s desires, cravings, obsessions, and longings. Marketers and entrepreneurs create this by transforming your needs to wants, which is why these (in finances and economy subjects) mostly pair up together. The other major difference of wants from needs is the fact that wants are also shaped by cultural and popular trends, since these appeals to various types of people.

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