Most people who manage their own finances, from single college students to heads of large, wealthy households, can take greater control of their spending using some basic budget techniques. Learning these techniques doesn't require formal education. Instead, you can learn many of them through creative budget projects that allow you to examine your income and spending from new angles.
One project you can undertake to learn a variety of budget techniques is preparing an estimated budget. Without referring to any of your financial records, construct a rough budget based on the income and expenses you expect to encounter in the following month. Track your actual income and expenses on a separate list and compare the two to reveal where you over- or underestimated your expenses and income amounts. This will help you make more accurate projections in the future.
Charting Cash Flow
Effective budgeting is a matter of timing as well as matching expenses with income. One area of a budget where timing has special importance is the matter of cash flow, which refers to the rates at which money enters and leaves a household. You can create a project to monitor cash flow by listing your sources of income over the course of each month. For example, if you receive biweekly paychecks, your cash flow will show two income dates for most months. Listing your expenses by due date will show you when you need to have cash ready to send out. This may reveal how changing a bill's due date or setting a specific sum of money aside from each paycheck will help you meet your normal expenses as they arise.
To categorize your expenses, take a recent month's budget and divide all of the money you paid, through checks, credit card charges and cash withdrawals, into several general categories, such as food, entertainment, utility bills, automobiles and rent. Some of these categories, such as rent, are fixed and difficult to change. Others are more flexible, and the totals for each category may point out opportunities for savings. For example, if you discover that your actual grocery bills are twice what you expected, you may be able to adjust your budget by shopping at discount food stores or buying in bulk.
Preparing an emergency budget may be necessary if you face a financial crisis, but it can be useful at any time. An emergency budget outlines how you will spend money given a sharp reduction in income, such as a job loss. Your emergency budget project can take advantage of other projects, such as categorizing spending, to determine your spending priorities. Compare your emergency budget to your monthly budget to determine which expenses you'll need to eliminate in an emergency scenario.
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