The Important of Having Practical Budget Techniques

When family has budget plan, they are heading to right direction of successful family financial planning. Let see for an example The Thompsons family. The Thompsons then list all their monthly expenses. They start by listing their fixed expenses, or those that do not change from month to month. That includes their mortgage, automobile and student loan payments, and insurance premiums. Their budgeted total for fixed payments totals $1,200. Below are some of practical budget techniques that they applied.

Budget for Variable Expenses

Planning for variable expenses—those that vary from month to month—is not as easy as budgeting for fixed expenses. Such items as medical costs are often unexpected. Heating and cooling costs can vary with the season. You should make your best guesses based on costs from previous months. When in doubt, guess high. The Thompsons budgeted $2,100 for these variable expenses.

How can you determine reasonable expense levels? Financial experts publish guidelines that tell what percentage of income should go for various expenses. The U.S. Department of Labor produces the consumer price index (CPI), which is a measure of the changes in prices for commonly purchased goods and services in the United States. Comparing the CPI to your actual budget can indicate when you are spending too much on various items. A third source of information is your friends and relatives. If you eat out more often than your friends do or buy more clothes than your siblings buy, your bud- get may be in trouble.

Record What You Spend

Your budget is prepared, but your work is still incomplete. You must begin to keep track of your actual income and expenses. Remember, many budgeted items are only guesses. Your old car may continue to run through the month. However, maybe it will break down next week and need $400 worth of repairs. To find out how practical your budget is, you will need to keep record of your expenses during an entire month and then revise your budget if necessary.

The Thompsons have used a second column to record the actual amounts they spent. Some of their expenses were what they had expected, and some were not. Your spending will not always work out as planned. The budget variance is the difference between the budgeted amount and the actual amount that you spend. This figure can be either a surplus or a deficit. It is a surplus if you spend less money than you had expected, and it is a deficit if you spend more. Budget variances can also occur in the income category. Earning more than you anticipated creates a surplus, whereas earning less results in a deficit.

Although the Thompsons have no budget variance on the income side, they have a surplus in their expense section. They spent $50 less than they had expected they would spend on entertainment. However, they spent more than they had budgeted in the other variable expense categories, creating a deficit in those categories. The overall result was a total monthly deficit of $75.

Review Spending and Saving Patterns

Budgeting is a continual process. You may need to review your budget each month and consider making changes based on the nature of your expenses.

Reviewing Financial Progress If you fall behind on bill payments, or if you are left with a lot of money at the end of the month, you may need to revise your budget. Even if your budget generally seems to be on target, it is a good idea to prepare an occasional budget summary to review your progress.

Revising Goals and Adjusting Your Budget If you always have deficits, ask yourself where you can cut your expenses. Review your spending patterns carefully to see where the shortfalls occur. Could you rent videos instead of going to the movie theater every week? Could you take a bag lunch to school instead of buying cafeteria food? Perhaps you do not really need a car to get around. Doing without it might sometimes be inconvenient, but it certainly would be cheaper.

To decide which expenses to cut, you might take another look at your financial goals. Which purchases fit into your overall plan for the future? The answer can help you in deciding what to cut. How quickly are you progressing toward your objectives? Are your goals changing or outdated? It may be necessary to revise your goals to meet your needs.