Budgeting is a crucial part of everyday life, yet many people have no idea how to write or stick to a budget.

What is a budget?

A budget is simply a list of income versus expenditure. It lists all your planned revenue and expenses so that you can ensure there is enough to pay the bills.

Different types of budgets need to be drawn up for different needs. For instance, these budgets are all very different:

  • Personal budget.
  • Business budget.
  • Event budget.
  • Government budget.
There are also many different things one might budget for. For instance, one might want to assess:
  • Monthly cash flow.
  • Yearly revenue versus expenditure.
These result in quite different calculations, even for the same income and expenditure.

A person who works all year and gets paid in one lump sum in November may show a break-even yearly revenue versus expenditure budget. However, if you examine the cash flow budget it will show that this person can't pay the bills until November. This person will need to borrow some money to cover cash flow until November.

The word 'budget' comes from an old French word, 'bougette' meaning 'purse'.

Writing a budget

A simple budget is a straightforward process.
  1. List all your income sources in a spreadsheet.
  2. List all your bills.
  3. Decide on a timeframe for your calculations, eg. monthly, fortnightly.
  4. Calculate what you earn from each income source in that timeframe.
  5. Calculate how much you need to spend on each bill in that timeframe.
  6. Add up the income and the expenditure and work out what the difference is.
The difference between the figures will tell you whether you are able to save money or whether you need to either earn more or cut back on expenses.

More complex budgets

Once simple budgeting is second-nature, you might consider more complex budgets, such as cash flow budgeting, planning for future events, savings and other personal financial goals.

Image Credit: Alan Cleaver