MANILA, Philippines ? In today?s global financial crisis, effective money management by every individual is a must. This means coming up with a concrete, detailed plan on spending as well as saving. Simply, coming up with a budget.
Budgeting is outlining your income as well as expenses. This outline will help you determine how you will spend and save. By having a budget, every individual is empowered as they will have greater control over their finances, allowing them to make better decisions such as paying bills or spending money on emergency expenses. Budgeting will also help an individual reach their financial goals.
Below are simple steps to follow to help you come up with a budget and determine your monthly finances:
Add your income
To be able to set up a monthly budget, first you need to determine how much you earn a month. In your budgeting, be sure to include all your sources of income, such as salaries, interests, and other sources. For married individuals, you can include your spouse?s income in your monthly budget.
Estimate your expenses
The next step is to determine how much you spend monthly. The best way to do this is to keep a record of how much you spend by dividing it into two categories: fixed expenses, which are fixed monthly such as rent, child care, gym membership, among others; variable expenses, meanwhile, change throughout the year like groceries, gasoline, and phone bill.
If your expenses vary every month, then get a three-month average to at least have an idea of how much you spend.
Figure out the difference
After doing this, the basic thing to do is to add up all your income and subtract from it your total expenses. The amount you will arrive at is your net gain or less.
If you gain a positive net amount, then you should take it as a good sign as this means you are living within your income level. It also means that you are able to spend and put money into your savings.
If the amount you arrive at is negative, however, then that means your expenses exceed your income and you are operating at a loss.
Below are some tips to help you manage your income wisely and increase the money you get to save:
Identify your needs versus your wants
It is very important to differentiate the two when you want to come up with a realistic budget. Your needs are essential to daily living and important to keep your life stable. Of course, wants are the opposite. When you spend for something you want rather than need, it is called discretionary spending.
Discretionary spending, however, is not bad per se. In fact, a want can even be a motivator for saving. But too much discretionary spending can be a downfall. All you have to do is monitor your discretionary spending and spend carefully.
Consistency is also an important factor in successful budgeting. Reviewing your budget every month is important to make sure that you keep track of your expenses.
A balanced budget allows you to monitor monthly expenses and maximize savings. Learning to budget is advantageous in the long term as it helps improve your overall net worth.
Net worth is one?s financial wealth. To compute it, you have to subtract your Assets (something you own with a positive economic value like stocks or real estate) with your liabilities (something you own that has a negative economic value like credit cards and mortgages).
Generally, the key to greater net worth is to maximize assets and minimize liabilities.
Generally speaking, the key to greater net worth is maximizing assets while minimizing liabilities.
Visa believes that one of the most important financial tools is not a product but knowledge. That is why Visa has been developing financial literacy programs that teach individuals how to spend, save and budget responsibly. In 2009 Visa committed to reach 20 million people worldwide with financial education by 2013.
Visa launched this year?s financial literacy program through a FIFA Financial Football game to compliment Visa?s sponsorship of the FIFA World Cup 2010. The interactive and educational game (www.visa-asia.com/financialfootball) allows players to gain financial knowledge and put their money management know-how to the test.