A budget is a financial plan that expresses intended expenditures along with proposals for how to meet those expenses with available resources. It may be that there is a surplus, providing funds for saving, or it may be that expenses are greater than income, in which case the budget may include proposals to reduce expenses and save.
Budgets are an important tool for anyone who wants to gain control of their finances and achieve their financial goals. They help people identify areas where they are spending more than they are earning and make informed decisions about how to change those habits. They are also helpful in reducing stress around money matters by making people feel more confident that they are living within their means and that they have a plan for paying off debt or saving for long-term goals.
To create a personal budget, start by identifying all of your sources of income. Then, subtract your expenses from your income to determine your net monthly income. Next, categorize your expenses into fixed and variable categories. Fixed expenses tend to stay the same month to month (like rent or car payments), while variable expenses can fluctuate – think entertainment, eating out, shopping and travel costs. Look back at past credit card or bank statements to get a sense of how much you typically spend in each category. Use these figures to create a target for each category, and then work to reduce those amounts as you move forward.
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