A budget is a summary of anticipated income and expenses for a specific time period, typically a month or quarter. It allows individuals, businesses or organizations to identify needs versus wants and control wasteful spending. A budget can also help people plan for the future by allowing them to set aside money for goals, debt repayment or savings.
Creating a budget begins by identifying all of your fixed and variable expenses. This includes everything you spend on a regular basis, such as rent or mortgage, cell phone and utility bills. It also includes discretionary spending such as eating out, shopping and travel. Look at your past credit card and bank statements to gain a sense of roughly how much you spend on each item each month. You can also estimate recurring annual expenses such as gifts, vacations and clothes.
Next, prioritize each expense to determine which are essential and which can be reduced or eliminated. For example, if you’re struggling to pay your bills, it might make sense to cut back on restaurant visits and coffee runs in order to save enough money for necessities. Alternatively, you may decide to earn more money by working overtime or getting a second job.
The budgeting process is ongoing and should be adjusted as your life changes. For instance, if you discover that you’re spending more than you earn, consider implementing an emergency fund to prevent going into debt. If you’re saving more than you spend, it may be possible to invest some of that excess cash.