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Are you searching for how to make a personal budget? We understand how important this is to you. A budget can span for a month, two, or even a year’s budget. Its length depends on the individual and how they want to pilot their finances.
In this guide, we will show you what a personal financial budget means and simple steps to set one up.
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What is a Personnel Budget?
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This is a plan for balancing your earnings and expenses for a long-term goal.
Setting up a budget means categorizing your expenses in a way that you can see how you spend money.
Having this clearer picture of your spending pattern will guide you on how to achieve your goals.
Your financial management plan is a core part of being literate. It is one of the most effective ways of curbing overspending. It is necessary if you borrow money or over-draft your accounts.
Your budget program can help you get out of the red zone and into the green.
What is in a Personal Budget?
To achieve your financial goals, create a budget that accounts for everything. From expenses like mortgages to little expenses like Netflix subscriptions, etc.
While crafting your budget, you may be tempted to overlook certain things. This is why most people often spend money they need help to account for.
Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.” A good monthly plan does not exclude any expenses because they are not essential.
If you don’t plan for it, you should not make the expense.
How to Make a Budget in 7 Simple Steps
In this section, we will show you how to write your budget that will help you manage your finances and income.
Most people often need a solid system that shows them where their money goes every month. Only some people make a year-long financial plan. Limiting your budget to a monthly basis is more practicable and realistic.
This way, you can have more immediate control over your income as you get them. If you stretch your budget thin across several months. Tracking your expenses might become challenging unless you are using apps for budgeting.
Also Read:
- 5 Ways to Manage Your Budget as a Business Owner
- Why We Need to Teach Money and Budgeting Skills to Students
- 5 Ways to Improve Your Budgeting and Forecasting Techniques
If this is your first time making a monthly budget, don’t worry, we will walk you through all the steps.
Step 1: Calculate What You Earn Every Month
Determining your monthly income is the place to begin. If you work in a salaried job, you can get this information from your paycheck or your accounts. Most companies include it in their appointment letter or an email of acceptance.
If you get paid twice a month, as most companies do, multiply one pay by two. If you work more than one job or as a freelancer, determining your net income takes on another approach.
Your net income is the money you take home after deducting your tax and other compulsory legal fees. We will cover how to calculate your net income in a later guide.
Step 2: Write Down All Fixed Expenses
Your fixed expenses are those that do not change month after month. Some examples are house rent, student loan repayment, mobile data phone bills, etc.
List them out on a sheet of paper or use a formatted budget worksheet or any good money management app.
Step 3: Calculate Your Fixed Expenses
After writing them down, the next step is to crunch them to know what you spend on fixed expenses monthly. You are doing this because your fixed expenses will likely be the same every month. So, in making a personal budget, that’s where to start.
The next thing to do is subtract the total fixed expenses from your net income. What you are left with is what will cover your variable expenses, and this is where the budgeting begins.
Step 4: Write Down All Your Variable Expenses
As you must have guessed already, variable expenses change every month. Some examples of variable expenses are restaurants, groceries, fitness classes, shopping, and gifts. It may be challenging to track all your variable expenses. But, your bank apps, credit card statements, and online and physical receipts can help you do this.
Write down every penny you spent last month that falls under variable expenses. Using last month’s data will give you an overview of your spending habits.
Step 5: Sum Up Your Variable Expenses
Sum up your variable and fixed expenses. If the total of our fixed and variable expenses is more than your net income, you are living above your means.
Step 6: Divide Your Monthly Expenses Into Categories
The next step is to sort each expense under a category. You can place subcategories under a broader category. Subcategories like “groceries” can be placed under broader categories like “food.” Doing this can help you study your spending habits more.
Step 7: Review Your Spending Habits
In this step, sum all expenses under each category. Divide the sum of your expenses in each category with your net income. Multiply the result by 100%.
The percentage of your calculation tells you how much that expense category is eating up.
Now that everything is laid out, check your financial plans and goals and adjust your budget to fit in. If you spend above your income, identify those areas and cut back.
Cutting back on variable expenses is easier than doing so on fixed expenses. But, if you spend on fixed expenses, it can be difficult to look the other way. You can cut back on some fixed expenses like rent. Move to a more affordable place or opt-in with roommates.
Also Read:
- The Need for Business Rules in Employee Expense Management
- 17 Best Business Ideas and Opportunities for Accountants and Auditors
- Why Learning About Money Matters: The Importance of Financial Education for Kids
Conclusion
Creating and keeping a personal budget can be a challenging thing for most people. So, planning and budgeting do not end in doing the mathematics and writing a bunch of numbers down.
You must follow through with determination to see that your finances are in good shape. Many people have opted for personal money management apps to plan their budgets. Some others use fintech e-saving apps that lock their money till a set date.
Whichever one works for you, adopt it and be determined to be responsible.
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