Ready for that long sought after vacation? Want to get rid of that old car and upgrade to something new? Tired of that loan never seeming to go away?
Creating a personal budget is one of the essential steps to financial stability and reaching all of those goals you may have for the future.
There’s really not too much to creating a personal budget. It helps you to understand your income, expenses, and savings. Which helps you to make better financial decisions. Take some time from your day to start tracking your spending and expenses.
Steps to Creating a Personal Budget
Step 1: Calculate Your Monthly Income
Start by figuring out how much money you are bringing in during the month. This would be any money from a job, freelance work, side gig, rental income, etc… Basically, anything that generates revenue for you.
Example:
Monthly Income: $3,500
Side Gig Income: $500
Total Monthly Income: $4,000
Step 2: List Your Expenses
Make a list of all your monthly expenses. These should be in two categories, fixed expenses and variable expenses. Fixed expenses are expenses that are unchanged and stay the same each month, like your rent, car payment, insurance, etc.. Variable expenses tend to change from month to month. Including groceries, eating out, entertainment, shopping, etc..
Example:
Fixed Expenses:
Rent/Mortgage: $1,200
Utilities (electric, water, etc.): $150
Loan Payments (Car payment, etc..): $300
Insurance (Health, Vehicle, etc..): $200
Total Fixed Expenses: $1,850
Variable Expenses:
Groceries: $300
Transportation (Fuel, public transit, etc..): $150
Eating Out/Entertainment: $200
Shopping (Clothes, gear, equipment, etc..): $100
Miscellaneous (everything else): $50
Total Variable Expenses: $1,850
Step 3: Calculate Your Savings
Determine how much you want to save each month for things like retirement, emergency fund, vacation, or buying a house.
Example:
Emergency Fund: $200
Retirement: $300
Total Savings: $500
Step 4: Adjust Your Budget
Now that you can see all of your monthly expenses and how much you are actually spending on each category, you can make a better decision on how to adjust your budget to meet your financial goals. If your expenses exceed your income, you will need to make some cuts in your spending habits.
Example:
Total Monthly Income: $4,000
Total Expenses: (Fixed) $1,850 + (Variable) $800 = $2,650
Total Savings: $500
Remaining Income: $4000 – $2,650 – $500 = $850
Step 5: Monitor and Adjust
This is where you’ll have to put in some effort to track and record your spending, so that you can keep a clear picture of where your money goes. Say you get a cup of coffee from the gas station every morning before heading to work, you would make sure to record that spending. Those little daily purchases tend to add up after a while. If you find that you are spending too much money on one thing in particular, try to cut back on it. You would be surprised at the amount of money you could be saving with just a few adjustments.
In Conclusion…
Starting with the basics of creating a personal budget can help you to determine where to put your money, so that you can, finally, take that long sought after vacation.
Or help you see how you can make changes to pay a loan off faster and get yourself out of debt.
Having the ability to see all of your income and expenses in one place can give you a better understanding of your spending habits and lifestyle.
So, what are you waiting for?
Your future dreams and goals are only a budget adjustment away.