HOW TO CREATE A BUDGET?

Everybody has different financial goals. If you have a specific savings plan in place, your chance of meeting your goals increases. Put your goals and savings plan together, then you basically have a BUDGET.

Here are some essential steps involved in budgeting:

Identify your true income. This is your annual take home pay. Items such gifts or bonuses can be used to add to savings, help you get out of debt, or even splurge on a one-time purchase. Since you can't count on them year after year, gifts and bonuses should not be considered part of your income for budgeting purposes. 

Record all your expenses. Start with big items such as house rent, bank mortgages, car payment, etc. Then work your way down to smaller monthly bills like light bills or utility bills. Use your billing statements as your reference, you might be surprised at how many things you are paying each month. Then estimate how much you are spending out of pocket, like cash purchases for lunch, coffees, movies, vices, etc. that you might realize you are making. 

Quantify other financial needs and goals. Your monthly costs are not your only expenses. You will also have long-term needs like saving for retirement, and other financial goals like buying a car or a house. Figure out how much you need to save each year towards these long-term expenses, because they will have to be part of your budget as well. If you need to get out of debt, then paying down existing debts should also be part of your budget.

Compute the surplus/shortfall. Subtract your short and long-term expenses from your true income. This will tell you how much of an annual surplus or shortfall you are running. Since the point of budgeting is to live within your income, a shortfall means you will have to make some adjustments. 

Adjust and monitor. If you are running a shortfall, take a look at your expenses and figure out what you can cut, to get them fit within your budget. If it looks like you will have a surplus, you need to budget specifically for that surplus. It can be something as responsible as adding it to your savings account for your emergency fund. Monitor how your budget is going, and make further adjustments that become necessary as new information takes place.

Invest when you have enough savings. Do not put all your eggs in one basket. When you have enough savings transfer some of your money into investment vehicle that will give you a better return instead of putting it all in a bank. Learn how to diversify.

Start with the basics. Follow these simple steps and stick with it no matter what. It will help you manage your finances.