Practical Budget Plan - Simple Tips

A budget is a plan for using money to meet wants and needs. Having a budget is necessary for successful financial planning. By using a budget, you will learn how to live within your income and how to spend your money wisely. You will also develop good money management skills that will help you reach your financial goals.

Set Your Financial Goals
As discussed earlier, your financial goals are the things you want to accomplish with your money. What you do with your money today will affect your ability to achieve your financial goals in the future. To meet those important financial goals, you will need to plan your savings, spending less money, and your investments.

How should you set your financial goals? That depends on your lifestyle, your values, and your hopes for the future. The type of job you choose will determine your income and your ability to save to reach your financial goals. For example, perhaps you would like to get a pilot’s license after you graduate from college. When setting financial goals, you will need to take into account the cost of the lessons and the amount of time it will take to obtain the license.

It is important to make your financial goals as specific as possible. Having a definite time frame can also help you achieve your goals. You can separate your goals into short-term, intermediate, and long-term goals.

Estimate Your Income
When you have set your goals, you can begin working on a budget that is practical for you. Start by recording your estimated income for the next month. Include all sources of income that you know you will be receiving, such as your take-home pay and income on investments and savings. Do not include money you may or may not get, such as bonuses and gifts.

Estimating income is easier in some cases than in others. For example, because Ryan always works 12 hours each week, he gets paid the same amount every month. In contrast, Rachel works irregular hours at two part-time jobs. During some weeks, she earns only $75, but there are weeks when her earnings are more. Rachel should estimate her income based on her best guess about what will hap- pen in the coming month. She might make her estimate a little lower than she thinks it will actually be. That will help her avoid overspending.

In another example, in Figure 3.5 on page 76, the Thompsons have estimated that their income for next month will be $3,550. Estimate your income and record that amount, using a similar budget form. Remember that a budget should always be a written document.

Budget for Unexpected Expenses
The Thompsons have decided to put aside a little money each month for unexpected expenses and savings to reach their financial goals. Every month they place $100 in an emergency fund. One of their financial goals is to save three to six months’ worth of living expenses in case someone in the family becomes unemployed, needs medical attention, or encounters some other financial problem. They keep their emergency fund in a separate savings account that will earn interest.

The Thompsons are also trying to meet three other financial goals, some short-term, others long-term. They deposit money in their vacation fund each month, hoping that they will soon have enough to take a trip to Jamaica. They also have a college fund for their young children and an investment fund to buy stocks. They put $150 into these other special savings accounts each month, bringing their total monthly savings to $250.