What Are The Steps In The Budgeting Process?
Now that we have understood budgeting & its benefits let us discuss the steps to prepare a budget.
The steps to prepare a budget can be categorized as follows -
1. Set up a plan of action.
Decide in advance what estimated proportion of your income you would like to separate as savings. This will make you plan more efficiently.
2. Identify your income.
Make a record of all the money that you earn on a periodical or irregular basis. This is important because it is this money you will use to manage your expenses.
3. Identify your expenses.
Keep track of all the expenses that you incur, whether regular or irregular. Understanding these expenses will ensure that your budget has prepared your income for any outflows you might face in this period.
4. Prioritize the urgency.
Focus on the expenses that will require handling first, before you set out to divide income for other expenses. For example, prioritize fixed payments you have to make while preparing your budget, as you cannot afford to skip these.
5. Devise and execute the plan.
Once you have understood the magnitude of your expenses, execute the budget.
When you start practicing your budget -
- Make sure to be flexible in your approach; and
- Keep making necessary changes to your budgetary limits as you go about your life.
For example, evaluate your budget if you get an increment in your salary, as your purchasing power would have increased because of it.