How would you go about preparing a budget?
First determine your expected amounts of income, expenses and savings in advance, then comparing those amounts to actual amounts recorded during the periods the budget covers. A net increase or decrease in funds at the end of each period is also calculated. The differences are analyzed to determine where you need to make changes to achieve your financial goal or goals.
If your goal happens to be a big ticket item, like the new car, new house or college education referred to above, you’d deposit a net increase in funds into your bank account at the end of each month of increase. In that way you can decrease the time needed to have the money to buy your desired item.
Or you can increase the amounts spent on other discretionary categories like entertainment. Should there be a net decrease, you’d reduce the amounts spent on other discretionary categories.
The budgeting process will help you keep your finances in balance, so you’ll always be able to pay your bills. It’s a great way to have financial peace of mind.