Consumers are in an extremely vulnerable position. The effects of poverty and unemployment is aggravated by rising food and fuel prices. While much of the financial stress is caused by external factors out of our control, occasionally, they may be aggravated by poor money management practices such as not having a budget. Budgeting is a foundational component of good money management, yet we often aren’t taught or exposed to the practicalities of budgeting. So, how do you create a budget from scratch if you have never created one before?

Step 1. Calculate your income.

The basis of a realistic budget is net income. That is your take-home pay minus any deductions. If you have irregular income, you can keep track of your income over a few months and use the lowest estimate for your budget.

Step 2. Track your expenses.

Now that you know how much money is coming in, it’s time to find out how much is going out. Track and categorise your spending by fixed and variable expenses. Fixed expenses are regular expenses such as rent. Variable expenses are those that may change from month to month such as groceries and entertainment.

Step 3. Set goals.

Set up realistic goals for yourself. These should be both short term and long term. Short term goals generally are goals that realistically take less three years to achieve, such as home maintenance. Long term goals are much longer, such as retirement. Setting up realistic goals gives your budgeting purpose and makes it more meaningful and manageable.

Step 4. Make a plan and adjust.

In this step you look at what you are currently spending and decide what you actually want to spend. For example, you may realise you aren’t on track to meet your savings target for home improvements because you are spending too much on entertainment. You can then attempt to direct some of the entertainment expenditure towards your home improvement savings pot. Generally, variable wants are the ideal place to find areas to lower expenditure, however, you may find it within the fixed expenditure category as well.

Step 5. Review regularly.

Constantly review your budget to ensure you are on track with your goals. You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. All of these may require you to relook at your budget.

Allah Knows Best