Author: Victor Gryazin
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Dear Clients and Partners,
What is Forex?
Dear Clients and Partners,
In this article, we will touch upon the issue of budget: what it is, what it is used for and how to plan it. Moreover, we will try to explain why a well-planned budget is such important for work with finance. Also, we will show you the advantages of an accurate budget.
Why budget is important
Budget is a financial plan for a certain timeframe that accounts for planned income and expenses. As a rule, a budget is drafted for a month or year.
Planning a budget implies a detailed list of expenses that gives a clear understanding of what can and has to be left out for your financial goals to be reached faster.
Explaining the importance of budget, we should at once enumerate its advantages. Firstly, a budget helps to manage your monthly expenses, makes you more disciplined, gets you ready for overcoming some crises, and stops you from making unwise financial decisions.
What is the goal of budget
Your budget demonstrates how much money a country, company, family, or person has and how much is to be spent on obligatory expenses. It must be noted that a budget is not a list of monthly earnings and spending; even such a table would be useful, though it will not help in reaching financial stability.
The goal of a budget is planning expenses and earnings over a certain time and then comparing your plan to what you actually got. This comparison and analysis of your statistics answers the basic questions:
- What have you spent your money on, and was it that necessary?
- Why your actual expenses have exceeded your plan and on what goods and services?
- How to follow your financial plan more accurately?
- What to do to minimise negative deviations of your budget from your plan?
What types of budget there are
A budget can be equally planned for a country and an individual who wants more order in their expenses. This document must fully represent the state of finance of a family or company. This means that the plan must include absolutely all sources of income and types of spending. The information must be true, valid, and full.
The process of financial planning is called budgeting and belongs to one of the following types:
- Personal budgeting is creating a budget for an individual for distributing income on spending, savings, and paying off debts. It accounts for previous expenses and debts. For example, a job is a source of income, while communal payments and rent are expenses. Here, we can also single out the category of assets: property, investments, and other savings or valuables that create a potential reserve for a budget deficit.
- Corporate budgeting is making a financial forecast for the nearest future that unites prospective income and expenses of various departments. It is the key element of integrated business planning. The process of corporate budgeting normally calls for a lot of effort, involving several employees. The final decision if left for the financial director.
Budgeting allows for balancing out your income and expenses and reaching your financial goals. The latter ones may be as ambitious as buying real estate, or more modest, like buying a smarphone. A budget will provide more accurate information about how to reach your goals fast.
Another reason for thinking about a family budget is creating a reserve for some emergency. It is recommended to save no less than 10% of your monthly income for a money airbag. It should last you 3-6 months in case you lose your source of income. This is one of the main rules taught on financial literacy courses.
Tracking all your expenses helps to find some possible sources of saving. And even is it seems that you have saved little today, imagine how this sum may grow with time if you stick to the plan.
Bottom line
A budget allows for tracking your income and expenses easily and in detail. A budget is the base for financial success and safety. It also helps to make difficult financial decisions.
Read more at R Blog - RoboForex
Sincerely,
RoboForex team
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