- Keep track of your income and expenses
- The first step is to keep careful records of the money coming into your household (income from all sources) and the money going out (expenses).
- You can then use this information to create a cash-flow statement that shows where your money comes from and where it goes during a specified period of time.
- Analysing your cash-flow can help you figure out whether your expenses are greater than your income.
- A cash-flow statement will help you identify where you can cut back on spending and ways you can save more.
- Create budget categories that are appropriate for you
- Once you have estimated your monthly net income, the next step is to think about appropriate categories for your budget.
- The two most basic budget categories are spending and saving.
- Set your financial goals.
- Goals can vary from meeting basic needs, getting out of debt, educating children, to buying a house etc.
- Once you decide on your priority goals, figure out the cost of each and set a time frame for achieving it.
- Estimate how much you must allocate to savings every month to achieve each goal.
- If this amount is more than you think you can afford, make adjustments by extending the time you need to save the desired amount, reducing the cost, or changing the goal.
- Allocate your income across your budget categories.
- If your cash-flow statement provides a good and detailed estimate of your current income and expenditures, you should be able to identify opportunities to reduce spending and save more.
- When you allocate money across budget categories, consider your priorities and financial goals.
- If, you don’t have enough income to pay for daily necessities, repay debt and save for specific goals you know that you will need to make adjustments in the budget.