How To Create A Personal Budget

Learning how to create a personal budget will help you stay one step ahead of your bills and financial obligations while reaping the benefits of financial stability.

The first thing you need to do in creating your personal budget is get a spending plan. This plan will include totaling your income for each month. Be sure to include all sources of income.

List on a piece of paper all your monthly expenses.
An easy way to be sure you include all your monthly expenses is to reference your checkbook.  Go back for one year and write down all the checks you wrote.  This will take some time but you need an accurate view of your spending. You generally have two types of expenses, regular and non-regular.  Regular expenses are things like car payments, rent or mortgage, insurance, gas & electric, etc. Non-regular expenses are things such as clothing, pet care, donations, etc. 

For non-regular expenses, add them all up for a year and divide them by 12.  For example, if you spend $100 year on donations then add $8.33 to your monthly expenses for donations. You probably already know what you spend on regular things like car payments or rent but this exercise helps you also find out what you spend on irregular things such as credit cards, donations, pet care, dining out, clothing, movies, etc. 

Total your monthly expenses and subtract them from your monthly income.
Surprisingly enough you may find out that your living within your means and you're able to make your expenses. So why are you broke and in debt?  The problem is cash expenditures. It's where a budget makes the difference.  Most people don't keep track of the cash they spend.  If you can make a conscious effort to track the cash that slips through your fingers each day for things like coffee, candy bars, lunch with friends, etc. you would probably be quite surprised.

Track Your Spending
Use a small notebook, calculator or financial software to track all of your expenditures. I like to use a small notebook or my palm pilot but the choice is yours.  Financial software does a great job. My biggest problem area was groceries, but when I actually analyzed what I was spending and my lack of organization ( I was at the grocery story almost every day) I realized I was spending about $10 a week more than I needed to. That's a savings of about $40 a month. Hey, that's a nice dinner out for my husband and I. 

Decision Time
If you have a clear picture of where your money is being spent you can make informed decisions about what changes you can make. 

Having a budget doesn't always mean sacrifice but you can make acceptable changes.  For instance if you find that you're spending too much money on lunches at the office, make your lunch and bring it to work. If you're spending too much money at the movies, rent movies instead.  If your long distance phone bill is too high, make better use of email or better yet look into more economical phone plans.

It's all about taking a long hard look and what your habits are and making a few compromises. Understanding your expenses, planning for them and staying aware is what it's all about.

Additional References:

• Budgeting Worksheets
• Budget Calculator 

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