An estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. One of the most important administrative tools, a budget serves also as a (1) plan of action for achieving quantified objectives, (2) standard for measuring performance, and (3) device for coping with foreseeable adverse situation. What is a budget and why is it important?
Simply put, a budget is an itemized summary of likely income and expenses for a given period. It helps you determine whether you can grab that bite to eat or should head home for a bowl of soup. It is typically created using a spreadsheet, and it provides a concrete, organized, and easily understood breakdown of how much money you have coming in and how much you are letting go. It’s an invaluable tool to help you prioritize your spending and manage your money—no matter how much or how little you have.
Planning and monitoring your budget will help you identify wasteful expenditures, adapt quickly as your financial situation changes, and achieve your financial goals. When you actually see the breakdown of your expenses, you may be surprised by what you find; this process is essential to fully grasping how things can add up. Creating a budget will decrease your stress levels because, with a budget, there are no surprises. Unexpected car problems or medical bills? That dream vacation your best friends are planning? With a budget, you don’t have to panic or wonder if you have the money—you already know. This sense of financial clarity is important not only in college, but throughout life. How do I create a budget?
Step 1 What are my goals?
The first step in creating a budget is to set your goals. What are your financial goals? Do you have debts you need to pay off? Do you want to minimize the debt you graduate with? Are you trying to save for a car, a vacation, or your future? What do want to accomplish while you are in school and when you graduate? Budgeting involves tough choices, but having a goal will make budgeting a little less painful and allows you to start planning for the future.
Every financial goal you set should be a SMART goal: Specific, Measurable, Achievable, Relevant, and Time Framed.
Your goals can be defined using these three categories:
Short Term: less than one year
Mid-Term: one to three years
Long Term: more than five years
For example, let's say that you want to go on a vacation to Hawaii when you graduate to celebrate your accomplishment! Maybe you are graduating in three years. So you have 36 months to save for your vacation. You did your research and found that you will need to save at least $4,500 for the trip you plan to take. So, that means you will need to set aside $125 each month until you graduate. Guess what? You just created a SMART goal! Your goal is:
Specific: You plan to go to Hawaii when you graduate to celebrate your success Measurable: You know that you will need to save $4,500 to take your trip Achievable: You will need to save $125 a month to meet your goal Relevant: Your goal is relevant to you - you plan to take a trip when you graduate as a reward for your hard work Time-Framed: You plan to reach your goal in 3 years
Step 2 Where is my money coming from?
Where does your money come from? List the sources of your income (e.g., work, student loans, parents) and the amount that comes in from each source each month. If you get one disbursement per semester (e.g., student loans and scholarships), determine the monthly allowance by taking the amount that's left after paying nonrecurring costs (e.g., tuition, books, dorm room) and dividing it by the 5 months in a semester.
Example: If you earn $400/month at work and you have $1000 left over from student loans after paying your once-per-semester costs, then your total monthly income is $600.
Step 3 Where is my money going?
Do you check your...
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