Financial Planning Necessity: Creating a Personal Budget
As the backbone of any wealth or financial planning strategy, the personal budget is the first step towards guaranteeing; your future is free from debt and doubts. The sooner you start to plan your financial future, the brighter it will be.
Instead of asking yourself, “How much do I need to save,” ask yourself, “How am I willing to change my lifestyle in order to achieve my goal? “Keeping yourself aware of various financial planning basics can help you feel more confident about your financial future.
Determine Your Income
First, you must go through your bank statements, income documents, current investments, bills or any other document that indicates the source of income. Once you have collected all the documents, go through all the sources of income and then calculate your net income or the amount of taxes. This amount of money will be your baseline income that will be used to calculate your budget.
Calculate your expenditures
Next, go through your expense documents and separate them from variable and fixed expenditures. Variable expenses are little difficult to calculate as they include your monthly expenditure on food, fuel and entertainment. However, if you are not sure how much to calculate, you can utilize your monthly back statement to get a better idea of how much you spend per month on variable costs Fixed expenses include your insurance, monthly rent or mortgage, car payment, and credit card payments.
Crunch the numbers
If your total expenditures are less than your net income, you are on the right path because you can immediately invest your income towards your financial goals, but if your expenditure is higher than your baseline income, you need to evaluate your variable expenses or you need to make more economical choices. You must minimize your expenses. You are going to thank yourself for this sacrifice in the future if you ever run into a career, medical or emergency situation that requires extra financial resources.
Monitor your progress monthly
Financial planning is often confused with a “plan to get rich”. While financial planning can enable you to become financially independent.As a part of successful financial planning, keeping an eye on the improvement of your expenditure and saving is part of staying on the right path to a better financial-building future.
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