Wednesday 24th July 2024

Word of the week: budget

A person does sums on a calculator, possibly budgeting their finances

A budget refers to a personal financial plan that outlines an individual’s or a household’s income and expenses over a specific period, typically on a monthly basis.  

The primary purpose of creating a budget is to allocate money to different categories, such as housing, transportation, groceries, entertainment, savings, and debt repayment, among others. 

Budgeting is an important aspect of basic personal financial management and can be the difference between being able to save for the future or living off credit cards each month.

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Here are key components of a personal budget: 

  1. Income: This includes all sources of money you receive, such as your salary, bonuses, freelance income, or any other form of earnings. 
  2. Expenses: These are the costs associated with various aspects of your life, such as rent or mortgage, utilities, groceries, transportation, insurance, entertainment, and more. 
  3. Fixed expenses: These are regular, unchanging costs, such as rent or mortgage payments, insurance premiums, and loan repayments. 
  4. Variable expenses: These are costs that can fluctuate from month to month, such as groceries, dining out, and entertainment. 
  5. Savings and investments: Allocating a portion of your income to savings and investments is a crucial part of a budget. This can include contributions to an emergency fund, retirement accounts, or other savings goals. 
  6. Debt repayment: If you have outstanding debts, such as credit card balances or loans, your budget should include a plan for repaying them. 

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