Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Sound Advice
Budgeting for Prosperity (Part 1)
Regardless of whether you're trying to manage your own personal expenses, or those of a large corporate business, without a budget, it's impossible to properly manage your finances. A proper financial plan and well put together budget are vital for your financial and emotional well being.
Below are a few steps to making a good budget that if properly applied, could lead to your financial freedom.
Make a list of your monthly income
Every budget process starts with your income. Your income dictates how much you get to spend each month. Remember that when calculating a budget on your income, the income that you must work from is your take home pay, ie after all expenses like TAX etc have been taken off. Add together all forms of income from bonuses to tax rebates and dividends.
Make a list of monthly expenses
Now put together a list of your expenses for that month. When compiling this list you need to break your expenses down into three groups: fixed, discretionary and flexible.
Fixed Expenses
Quite self-explanatory, fixed expenses are expenses that do not change from month to month. For example your mortgage payments, car payments and insurances are fixed expenses as these don't change from month to month.
Discretionary
These are expenses that aren't crucial, but are nice to have like entertainment, movies, club memberships etc.
Flexible Expenses
Expenses that you always have each month, but that vary in cost from month to month. These would be like groceries, clothing etc.
Order of priority
With each of the above expenses lists, put each item in that list in an order of priority.
If your expenses total is greater than your income, then you'll have to start relying on your credit cards etc to make up the deficit. Unfortunately, doing this on a regular basis leads to many falling into long term debt and later on bad credit. Be wary when using your credit cards as a fall back to paying expenses.
Continue Reading Part 2 of Budgeting for Prosperity
