If asked to define the word “budget,” many would probably say is has something to do with devising a plan

If asked to define the word “budget,” many would probably say is has something to do with devising a plan to save money. However, it’s much more involved than that. It involves taking an accounting of where you spend your money and how your spending is impacting your ability to meet personal financial goals.

Consumer research studies that have been conducted in past years have shown that more than 60 percent admitted to having a budget in place. More than 77 percent said they’d give themselves either an C, D, or F in personal finance if asked to grade their performance in the subject. With such poor ratings, it would seem that many of us could benefit from setting up a monthly or yearly budget to better stay on top of expenses.

When creating a budget, the first determination you need to make is how much actual income you receive each year. This includes income you receive from traditional employment, freelance work, tax refunds, gifts or something else.

Next, you want to determine what your expenses are, both fixed and variable. Fixed expenses included amounts paid for bills such as mortgages and car payments. Varied expenditures include costs for utilities, groceries and gas that may fluctuate month-to-month.

It’s also important to account for periodic expenses that may be due once or twice at different points during the year. Property tax and car insurance bills are examples of these. These can easily creep up on you and can be quite costly, if not planned for.

Planning for the unexpected is a good rule of thumb to follow. Most financial planners recommend allocating as much as 10 percent of your income to an emergency fund should unanticipated car or home repairs, or medical bills arise.

Once you have properly documented both your income and expenditures, you are then able to take your expenses and subtract them from your income. Although, in doing this, you should be left with an excess of money to work with. If not, you should reassess your budget to see where any cost cutting measures can be made.

If you find yourself burdened by much higher bills than you can to pay within your budget, a Knoxville, Tennessee, bankruptcy attorney can share valuable insight.

Source: mydccu.com, “Money management: budgeting,” accessed April 12, 2017