Each successful budget takes into account the same basic categories or characteristics. A good budget makes sure you do not spend more than your annual income, and allows you to plan for upcoming expenses and to save for the future. A budget takes into account your financial goals and helps you to achieve them, while controlling the amount you spend.
Your income is one major characteristic of your budget. It sets the spending and saving limits, because it determines how much money you will have available in your budget. If you are having a difficult time following a budget, or staying within your budget, you may need to raise your income. If you cannot comfortably meet all of your necessities and save for the future, with a small amount left over for fun things, then you have an income crisis. Consider finding ways to raise your income to solve your budget problems.
Saving and Investing
Saving and investing is an important part of a successful budget. A budget is a tool to help you build wealth and gain control of your finances. A good budget contains a savings and investing category focused on building wealth for the long-term. Retirement savings can be a part of this category. It is a good idea to begin by saving at least 10 percent of your income each month for this category.
A good budget also prepares you to handle unexpected expenses, such as job loss, car repairs or high medical bills. This could also cover unexpected home repairs, such as a broken pipe or a leaking roof. Six months of income in an emergency fund will help you through most crises. Once you reach this amount, you do not need to continue contributing to it, though you should replace the money once you use it.
Expenses for Necessities
Each budget should include a list of your monthly expenses that cover your necessities. These are basic things you need to care for your family, such as food, shelter, transportation, insurance and utilities. It is important to be able to distinguish your necessities from your wants. Although you can reduce the amount you spend on your necessities, they should not be cut from your budget completely.
Expenses for Wants
It is important to include your wants in your budget as well. If you do not spend any money on fun categories, you are setting yourself up for failure. Your wants would include cable televisions, entertainment costs and gym memberships. The list could be much longer. Be sure that your wants are not stopping you from reaching your long-term financial goals.