Budgeting Terms For Beginners
Budgeting is an integral part of our lives but can be challenging, especially with the many complex financial lingo. However, it is the only way to keep your finances organized and achieve your goals. You may think budgeting isn’t for you, but that isn’t true. Anyone can start budgeting and learn to be more savvy with their money.
If you want to start budgeting without feeling overwhelmed, here’s a quick guide of all the key budgeting terms you’ll need to know:
Income is the money you earn on a regular basis, including your salary, wages, rent received, dividends, and so on. Your income is all the money that will be allocated in your budget.
Fixed expenses are the specific amount of money you spend every month, with minimal changes from month to month. For example, some common fixed expenses include rent, mortgage payments, loan payments, and so on.
Variable expenses fluctuate every month and can be adjusted according to your needs. For example, variable expenses include groceries, transportation costs, dining out, and entertainment.
Discretionary expenses aren’t related to your basic needs and are not recurring. They are usually considered a luxury and are the first thing you would cut back on if you were trying to save. Some examples of discretionary expenses include spending on vacations or hobbies.
An emergency fund is a separate fund kept in a savings account for emergencies. This savings account is separate from your regular savings account and is solely for unexpected expenses. For example, if you are involved in an accident, you can use your emergency funds to pay hospital bills or get your car fixed. An emergency fund allows you to get through emergencies without disrupting your regular budget or forcing you to take on debt.
Targets are goals. They help you decide how much you want to spend, how much you want to save, and over what period of time you want to achieve those goals. You might set a target to save for a vacation over a span of 6 months. If you save enough by the end of those 6 months, you’ve met your target.
Zero-based budgeting is a method whereby you allocate every single dollar you have to a specific purpose, whether spending it, saving, or anything else. This form of budgeting allows you to know exactly where all your money goes and helps you learn more about your spending habits.
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