A traditional budget indicates the amount of money you allot during a set time period for specific financial obligations, such as rent, entertainment or insurance. The budget is designed to help you spend your income according to a plan. A traditional budget starts with your income and lists the categories on which you expect to spend your money. At the end of the time period, if you keep accurate records, you should know how closely your spending matched your intentions.
Usually, people develop a budget based on how they currently spend their money. You won’t have to guess where your money is going if you keep track of your expenses for a set period of time, say two calendar months. List your expenditures during that spending period into recurring expenses, such as rent or mortgage and cable; yearly expenses, such as auto registration or income taxes; and variable expenses, such as utilities or a new dress. With the information you’ve gathered, you are ready to develop a traditional budget based on categories of expenses, such as food, household, utilities, entertainment, auto, medical and dental, clothes, savings and insurance..
Develop a Plan
A traditional budget starts with the assumption that the money you spend during a budget period should not exceed your income -- after taxes and payroll deductions -- for that period. The easiest period to work with is the period between paychecks. Any income beyond your regular salary or wages, such as a yearly bonus, can be saved to pay your yearly expenses by investing in easily retrievable assets, such as mutual funds, or put into a bank savings account. Or you can divide yearly expenses into equal amounts that you add to each budget period, so the burden is spread evenly throughout the year. For variable expenses, such as gas and electric, which depend on the season and weather, traditional budgeting suggests you divide the yearly cost into equal amounts and save unspent money in any period to cover your costs in periods that exceed the average.
Create Expenditure Amounts
Based on the two-month analysis of your expenditures, decide on appropriate sums to budget for each of your categories. To get a complete picture of your spending, you need to have an accurate record of all your expenditures during each budget period. All credit card expenses must be included. A category for inexpensive, miscellaneous items which you pay for with cash is useful for removing some of the burden of recording expenses.
At the end of several budget periods, you may want to revise the amount of money you allocate to any category. To keep your expenses within your income, you may find it helpful to cut your costs in one category so you can increase your spending in another. Traditional budgets are not intended to be carved in stone but to serve as guidelines.
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