How to make a budget and what is it used for

To know how to make a budget, of whatever nature, we must consider two main elements: income and expenses. The first thing we must calculate is how much money is generated and how much is consumed.

Based on these numbers we can know if the income is sufficient if we need to expand the resources we invest if we can cut costs and if we can meet our objectives.

Now, before talking about the calculations we must make, we need to ask ourselves: why do we need the budget?

It is not the same to speak of a budget to manage the resources of our family that of one that allows us to finance a particular project, be it recreational -like the realization of a trip or a party-, or business -to start a business, an investment or any other project.

In this sense, the first thing we calculate depends on the type of budget we make.

Know income and expenses: When we make a budget to optimally organize the fixed costs of a house we must first calculate the household income. Knowing how much money our household generates allows us to know the spending limit, we can not use more money than we have.

Based on this information we can go on to evaluate the expenses that we make, we post the fixed expenses, those that vary but are regular and those that we eventually need to cover during the year.

Evaluate and start making adjustments: We must subtract our income from the result of the expenses. If you give us a positive number, that is, if we have money left over, it means that what we earn is enough to cover our economic needs, although it is not too much to check if we have cash leaks that we can reduce.

If, on the other hand, the result is negative, we must review what we are spending more, if what we earn is not enough, it is likely that we live with the stress of having to borrow regularly from acquaintances or that we are abusing our credit card.

On the other hand, when we make a budget in order to reach a specific recreational goal or to acquire some good that makes our life easier, what we must calculate first are the expenses that we will have to do to reach our goal.

The saving is a “fixed expense”: If we want to make a trip with our family, we must take into account how much transport will cost us to our destination, the accommodation during our stay, the activities we will do and the meals we will make.

Then, with the amount of money we need in mind, we will be able to draw up a savings plan that will lead us to the door of realization. Imagine that we require 18 thousand pesos in total.

So, the next step is the consideration of the amount of money that we can allocate each month to fulfill our dream vacation. If we can save 2 thousand 500 a month, in little more than seven months we will be ready for the getaway we have planned.

For other purposes: On the other hand, the realization of a budget for business purposes has two aspects: when we generate a projection to start a business and when we perform an assessment of the finances of a company.

In the first case, the first thing we must calculate is the number of resources we need to start our business project and how much capital we will need to cover the financial needs that will be generated in the short, medium and long-term.

Subsequently, what we must do is verify the resources we have and analyze the options that exist so that we can finance the business.

In the second case, it is important to have detailed reports on the performance of the company, the more time this information is, the more accurate our calculation will be.

This type of budget is what is known as a balance sheet, it is important to consider the income, profits, credits contracted and assets on one side and payroll payments, capital expenditures and the payment of debts on the other side.

Starting a business can be a great option to start achieving your goals, to be able to make ends meet, to cover the basic expenses of a house and to clean up your finances.

Apply it and see its results: As you can see, each budget requires a different approach. However, there are factors that intervene in any budget and that are fundamental for us to fulfill our economic commitments, achieve our savings goals and achieve our short, medium and long-term objectives.

It is important to know that, when making a budget to evaluate if we have enough money to start a project, we should not be discouraged if we realize that the expenses are higher than the income.

If it is an ambitious plan, this is likely to happen, we must not give up. There are alternatives that exist to solve these bottlenecks.

There are always more options: In general, there are two options that we can use to solve a problem of this type: look for additional income sources and apply for a car loan

On many occasions, the first one is much more complicated, so it is highly recommended to approach with a financial institution that offers the resources we need.

Finally, it is important to remember the importance of planning our expenses in general. A good financial culture is undoubtedly a determining factor to lead a quiet life.

It is not just about throwing numbers to pass the time, it is a relevant and rational assessment of the resources we have, on the one hand, and the optimization of our expenses to avoid money leakage, on the other.

Regardless of the type of budget, we have in mind, the two elements that we should consider in general are our expenses and our income. For the expenses, we subtract the income and we can know how healthy our finances are.

We must remember that it is possible to achieve our objectives, all we need is an adequate and realistic planning, the will and determination to carry out our projects, and the discipline to fulfill our goals.