How to Make a Personal Budget


The recent economic times have been successful at forcing individuals to recognize the need for making a personal budget, but the simple fact of the matter is that few people really know what that entails. There is no doubt that a person’s financial future is strongly dependent on their planning and their ability to manage money wisely. The good news is that creating a budget doesn’t have to be difficult or painful and it can actually be quite exciting to watch the savings grow.

The first step in making a personal budget is to list all of the expenses that are fixed every single month and are not likely to change. These will most likely consist of rent or mortgage payments, child support requirements, insurance premiums, car payments, and other financial obligations that will remain the same. It is important to note that the first list of fixed expenses should only include bills that cannot be excluded by choice. As much as it pains most people to admit it, satellite television is not a good example of a bill that is absolutely necessary.

After a person has listed all of their fixed monthly expenses, the next step is to focus on the other bills that must be paid every month that will vary in amount. Utilities obviously have to be paid each and every month, but the electric bill is apt to change as the weather does. When creating a budget, it is important to understand that if all of the variable bills are included at their lowest levels, it is going to be very difficult to allocate money properly when these obligations are higher. A person must either average the typical bill or they can simply include the highest amounts possible to make it as easy as possible to stick to.

Most consumers realize that plenty of their variable expenses, and possibly even some of their fixed costs, are not an absolute need and could be trimmed from their budget. However, the majority of financial planners encourage their clients to be realistic in their expectations and it is not always necessary to live without cable, internet, or occasional outings. It is always a good idea to look at the costs and see what can be reduced or eliminated, but the consequences of such actions should also be carefully considered. For example, reducing the amount of allowable minutes on a cell phone plan may save a little bit of money upfront, but could cost more in the long run if more than the allotted minutes are used and expensive charges apply.

A critical component of a personal budget is not just focusing on the expenses, but also looking at the income side as well. Some consumers, such as the ones that are paid based on commissions or bonuses, may find it difficult to come up with an exact figure. Others may find it an easy task because they have the same paycheck on a regular basis. The goal is obviously for the income to be higher than the expenses.

The budget that has been developed so far still does not include gas, food, and entertainment costs. All of these items should be included, but it can be difficult to determine how much is spent every month if it has never been tracked before. Most consumers find it helpful to jot down all of these such expenses for 30 days, and this will be the most accurate way to add these to a personal budget. These expenses may actually make up the largest part of a budget and may need to be controlled, but few people really have a good handle on the true amount of money they spend in these areas.

A personal budget does not have to be complex, but it is important to lay out all of the expected expenses and income. An additional amount should be set aside for unexpected bills or vehicle repairs, but this can be placed into an emergency fund or savings account. One of the best tips that has become quite popular is to set a savings goal based on the budget and take that amount of money out from each paycheck immediately before any other bills are paid. Individuals won’t miss the money and watching the positive results of putting a budget in place can be very rewarding.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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