Although your checkbook will give you a fairly complete record of your expenses, it does not serve the purpose of planning for spending. A budget requires that you outline how you will spend available income. Various types of budgeting systems exist, from informal procedures to computerized spending plans.
Financial advisers and experienced money managers recommend a written budget. The exact system and the amount of details will depend on the time, effort, and information that you put into the budgeting process. A written budget can be kept on notebook paper or in a specialized budgeting book available in bookstores. A common budget format is a spreadsheet that has several monthly columns for comparing budgeted and actual amounts for various expense items.
As the use of personal computers has increased, so too has the use of computerized budgeting systems. In addition to creating a spreadsheet budget presentation, a home computer is capable of doing other financial record keeping tasks such as writing checks and projecting the future value of saving accounts. Information about the use of a personal computer for financial record keeping and planning is available through computer stores. It takes time and effort to learn the system and enter data; however, a computerized budgeting and record keeping procedure can yield fast and accurate financial planning data.
Having a spending plan will not eliminate financial worries. A budget will work only if you follow it. Changes in income, expenses, and goals will require changes in your spending plan. Money management experts advise that a successful budget should be:
* Well planned. A good budget takes time and effort to prepare. Planning a budget should involve everyone affected by it. Children can learn important money management lessons by helping to develop and use the family budget.
* Realistic. If you have a moderate income, don’t expect to immediately save enough money for an expensive car or a lavish vacation. A budget is designed not to prevent you from enjoying life but to help you achieve what you want most.
* Flexible. Unexpected expenses and changes in your cost of living will require a budget that you can easily revise. Also, special situations, such as two-income families or the arrival of a baby, may require an increase in certain types of expenses.
* Clearly communicated. Unless you and others affected by a budget are aware of the spending plan, the budget will not work. It should be written and available to all household members. Many variations of written budgets are possible, including a notebook or a computerized system.
After you have established your spending plan, you will need to keep records of your actual income and expenses. These are presented under “Budgeted Amount”. The family’s spending was not always the same as planned. A budget variance is the difference between the amount budgeted and the actual amount received or spent. Variances for income should be viewed as the opposite of variances for expenses. Less income than expected would be a deficit, while more income than expected would be a surplus.