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Budgeting Fundamentals

Why a budget

Everyone has a limited income usually from a salary or a business. However the goods and services available for sale in the market are unlimited. One has to choose from many alternatives. No one can buy it all. The budget specifies what you are going to buy with your money. You can plan your spending and put money aside for what you need.

Making the Budget

The first step in making the budget is writing down your income. The second step is listing out the expenses. The third step is planning your savings. The expenses are classified as basic needs, consumer durables, and comforts. The basic needs include expenses like food, clothing, shelter, education, transport and house maintenance. Consumer durables are machines we use in the house like computers or food processors. Comforts include vacations, parties and first class travel. Spare cash is required for emergencies and eventualities. Spare cash is easily accessible from your bank. The list of expenses can be as elaborate as required. Savings are planned for the future like retirement income. The budgeting equation is:

Income = Expenses + Savings + Spare Cash

Prioritizing your budget

The priority sequence is basic needs, spare cash, savings, consumer durables and comforts in the decreasing order. With a budget you can make sure that you buy all the things you always wanted.

Finally a budget is required so that you do not need to be calculating your finances all the time and it gives you the peace of mind you deserve.

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