Tuesday

5 Simple Steps to Create a Personal Budget

A personal budget is the best way to gain control over your finances and live a life free of financial stress.


Here are the simple steps to achieve this:

Step 1: Expenses

Collect all your financial information together. Anything that documents your expenses for the last three months needs to be collected. This will include: credit card statements, bank statements and receipts for any other expenses. You will use this information to categorize your expenses.

What do you spend on your home?
What do you spend on your car?
Your food?
Your health?
Entertainment?


Begin by drafting the categories and sub-categories you think your expenses will fall into. Keep in mind that you will want a budget category devoted to savings goals too. As you go through your expenses you can verify your category decisions.

Step 2: Income

Determine how much money your really have to budget with by gathering your income statements or profit and loss sheets. You can use either your net or gross income as your number, just be consistent. Also, if you choose to use your gross income, make sure to account for your taxes on your list of expenses.

Step 3: Monthly Spending

Now examine how much you spend each month on each category or sub-category. I highly recommend that you write this number down. This will help you predict how much you will spend in the future. You want your budget to be a realistic reflection of your spending habits, not a financial diet.

Step 4: Create A Budget Record

Find a method of recording your budget. This could be a simple spreadsheet where your columns are a list of your categories, your weekly or monthly available spending amount, how much you actually spend and the difference between the two numbers. Your rows will be the income and expense categories you’ve already established.

Step 5: Follow Your Personal Budget

Spend a month or two following it once you have created your budget. Keep your budget close at hand so you can track your finances closely. Review your spending on a weekly or monthly basis. Re-evaluate your budget if needed. Your budget is not set in stone and some of your expenses are variable, meaning you control how much you spend on them. For example, entertainment is variable and your mortgage is fixed.

A personal budget is nothing more than a spending plan. It is a tool to control your money and be knowledgeable and smart about where it goes. It’s your money after all, and isn't it great to have the upper hand?




1 comment:

Anonymous said...

Good post. Everyone should have a budget.

About.com has a good worksheet to use:
http://financialplan.about.com/cs/budgeting/l/blbudget.htm

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