Why all the fuss about creating a budget?

You’ve heard about budgets, but in your mind it’s something over there

The topic of your finances isn’t one you often dwell on, but you have a small niggle in the back of your mind that you probably should. Here, I’ll give you a quick rundown of what a budget is and why you should probably consider getting one sorted.

You’ll find yourself feeling rather smug once you get a good grip on a personal budget! Plus, using a budget instantly turns you into one of those money-savvy people!

What is a budget?

A budget is a tool you can use to get your money in check. Ultimately, it guides you through the process of getting your money in order by making you aware of where your cash is coming from and going to.

Income

The budgeting process starts by looking at your income. You may be thinking that there isn’t much to look at, but income does not only include salary – there are many types!

Active income is money you’ve earned by putting some work in. For example: traded time for money. This includes through employment, self-employment, a side gig…

Passive income is money you earn through no or minimal effort of your own. It arrives even as you sleep. This type of income does often involve some setup effort. Income types are rental, book or music royalties, dividend, interest…

Considering all the different types of income out there, are you taking advantage of this by generating income from various streams? Many have come across the term ‘multiple income streams’. This simply means you earn money in a variety of ways – this is key!

Expenditure

This crucial step is about understanding where you distribute your income. Again, this can be further broken down into types of expenditure:

Savings should form part of your monthly habits, especially saving for an emergency fund.

Fixed expenses are the expenses where it is not so easy to change the amount and payment frequency. These include your rent, mortgage, utilities…

Variable expenses are those that you have full control over. You dictate when and how much you spend. For example: the type of detergent you buy, takeaway spend…

Investing in assets is done in the hope of achieving some form of return. Investing should be considered after saving.

Thinking about your spend in this way is transformative for how you spend your money. You are likely to have more clarity and take smart steps to increase the amount of money in your pocket!

Bottom Line

Understanding the above is vital for you to take control of your own finances. Creating a budget, whether using Excel or an app, is the first step to improved finances, empowerment and long-term financial success!

Get started today, check this guide to help you along.

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