How to Make a Personal Budget

How to Make a Personal Budget Plan

There’s a lot of frustration to being an adult, and one of those frustrations that doesn’t often get the attention that it shuld, is your personal budget. When you are in control of your own spending, it’s easy to go a little over the top sometimes and then panic when you realize that you’re going to have to live close to the red line for the next few months. Want to know how to make a personal budget plan? We all have those weak points and we all have plans for the future. Learning money management and developing a budgeting plan will help you to make sure that you get there. It doesn’t matter how small or large your goal makes seem. By assessing and adjusting your cash flow management, you’ll get there the right way. But first you need to figure out just how to budget.

What it entails

When you hear the word “budget”, it will often make you cringe. You imagine night after night of eating canned food or skipping a night out to the movies with your friends in an effort to save money. It’s a word that has gotten a bad reputation over the years, when, in reality, it’s just a personal financial statement that is going to help you enjoy stability in your financial and otherwise life. A budget is simply the means to get you to that stability.

In our modern world, a budget is a plan that you design to work for your needs and lifestyle, and then you implement it. At times, you’ll have to tweak it and adjust it to make room for some forgotten elements or add-ons that you didn’t know about when you made your plan initially, but the focus on making a personal budget is to make sure that it is sustainable for the long-term benefits.

A budgeting plan is intended to be realistic, comfortable, manageable and goal-oriented by your own definition. That’s why you’ll find all sorts of different budgeting plans and options available for the choosing. We’ll take all look at some of the most popular ones in a bit, but first it’s important to make sure that you’re ready to actually put together the budget when the time comes.

What you need to make a budget

As you can imagine, there are some details that you need to focus on when it comes to putting together a personal financial statement. All of these entail taking a look at your current financial situation and being honest and realistic about both income and expenses. When you sit down to design your budget, first make sure that you’re ready to really make it work for you. Here’s your to-do list:

  • Track your income for the last six months and use it for an average: This is particularly important if you are someone who lives off a variable income. It’s important to understand the trend of your earnings.  Even if it’s fixed, go back at least six months and tally it up. Make sure to include all tips, bonuses and side gigs into that amount.  Tally it up and take a moment to be proud of what you’re earning. Yes, seriously. You’re doing good!
  • List all of your expenses (including debt payments): This is often the painful part, but it’s important to be honest and clear on all of your expenses. Some of the big ones include rent/mortgage, insurance, electricity/heat/gas, phone and internet, cable/satellite/Netflix/Hulu fees, gas fill-ups and oil changes, groceries, etc. All fixed expenses will be easy enough to track. Variable expenses such as oil changes and gas, for example, can be estimated based on past bills. When in doubt, round up to the nearest dollar to make sure you don’t undercharge it on your list of expenses. Don’t forget to add even the small ones in such as banking fees. Put it all on the list and make sure it’s all accurate using your past records as a guide. It seems like a lot, but it’s manageable. You just have to see how bad the “damage” is first.
  • Don’t forget to allot (realistically) for emergency payouts: It’s always a good idea to throw in a little extra for your expense for emergency issues such as plumbing repairs, car maintenance, parking tickets, etc. It’s easy to think that you’ll be able to just “wing it” when something pops up, but remember that the goal is to figure out where your money is going and to, of course, manage it. This includes those unplanned expenses. Put that into your list of expenses so that you find you don’t need to borrow to take care of those issues. You’ll be able to simply pay it out with cash that you stored away.
  • Figure out what your financial goals are: Another part of getting ready is to figure out what goals you have for your finances. Are you aiming to be totally debt-free? Are you saving for a new car or a trip? Understand your goals and don’t be afraid to think about those really far away goals. You need to focus on why you’re doing this in the first place, after all. Also, understanding what your goals are will help you to determine just what kind of budget plan is going to be the best one for you and your goals.
  • Be ready for change: Lastly, you want to make sure that you are ready for the changes that are going to come. As you’ll find out when you take a look at the types of budgets, you don’t need to skimp and save and never have fun. But, you will have to adjust your habits and get used to simply tracking everything. It’s a shift that can cause a lot of people to resist it, especially at first. Be ready for that change and embrace it. After all, learning how to budget is going to make your money management techniques so much better, which means that those far away goals won’t be so unattainable.

What are the main types of personal budgets?

As mentioned briefly, there are a series of popular options out there that will offer you different benefits and options when it comes to the actual budget that you put into place. Some take more adjustment than others, and you may find that some options are, in fact, better than others for your personal goals and options. Understand that just because the “favorite budget plan” doesn’t appeal to you, doesn’t mean that you’re doing it wrong. A personal budget is, well, personal. It needs to work for you as an individual. Without further ado, here are some of the most popular budgeting plans:

  • 50/30/20: Often thought-of as being the most popular budget for those who are in the middle or upper class, this budget focuses on separating your finances into three categories, all focused on transactions. 50% is focused on your needs (rent, insurance, groceries) that are non-negotiable and absolutely critical for day to day life. 30% is focused on what would be considered wants (dining out, Netflix, gifts, etc.) which are often negotiable and considered to be more about recreation and enjoying life. The last 20% is focused specifically on debt or savings (credit card debt repayments, retirement accounts, etc.). This plan means that you would manually take your total take-home income amount and split it up via percentages into these three categories. The amounts you have for each section are what you are allowed to spend per month. This kind of budget is great for a beginner who is really trying to get a handle on where they money is going and just what is taking such a huge chunk out of their paycheque. It’s also great if you are someone who has a large and busy social life where the “wants” category (30%) needs to be an important focus in order for you to keep up your quality of life. This is a budget that is also intended for those who are looking to understand money ins and outs and are enjoying a comfortable take-home amount each month. It may not be practical for those with variable incomes or lower incomes, or even those who want to focus more on debts and savings.
  • The envelope system: Old-fashioned but still useful for all of the reasons you would think, you can also work with hard, cold cash when it comes to building your budget. For this to work, you would take out a month’s worth of income and separate it out into different envelopes: one for bills and needs, one for debt repayments, and one for wants or fun living. This is a great way to really see just how much money you spend on one category. You may realize that you only spend half of your fun living envelope. So, at the end of the money you can add the leftover amount of that envelope into the debt repayment envelope and gain some ground. On the other hand, you also may find that you under-budgeted the amount for groceries in your bills and needs envelope, so you’ll have to pinch an amount from your fun living amount. It’s a great way to get yourself off of a credit card crutch and really see where your money is going: cash flow management in a literal way. 
  • Reverse budget: If you are someone who wants to budget specifically for the idea of paying back significant loans or really start shoveling money into your savings account, then the idea of a reverse budget may be a great option for you. This means that you have a (carefully selected) chosen amount each month that goes towards your debts/savings and then you must survive off of the rest of the paycheque amount.  Of course, it’s important that your bills and needs are taken care-of first, but when it comes to what’s left over after you have that amount, you can pick the amount to tuck away.  This is also a good budget for those who have a quieter or cheaper social calendar.  This is also effective for those on variable incomes because it can reset each month easily.
  • Rely on budget apps: There are all sorts of budgeting apps that you can get for your phone. Quite a few of them can be linked to your bank accounts on your phone, too, so that you can get real data and real limits that reset daily or weekly, etc as you want them to.  If you are someone who is glued to their cell phone, this is a great way to make a budget work for you.  Some of the top options include Mint and Personal Capital.

Last minute tips:

  • Don’t be afraid to mix and match: Like the 50/30/20, but want to switch it up to different percentages or different headings? Go for it!  Want to combine a budget app with something like the reverse budget?  It’s all yours.  The goal is to get this budget to work for you.  There is nothing set in stone and you can adapt and adjust the budget into whatever feels functional and productive for you.  There is no wrong way to budget other then, well, not to budget.
  • Track everything and record it: The thing with all budgets (except intuitive phone apps) is that you are going to have to track everything. Don’t lose receipts or forget to write an amount down.  The more accurate your budget is monthly, the better the results will be.  Honesty is critical with a budget.

Designing a personal budget to work for you doesn’t have to painful or embarrassing or restrictive.  It just means taking account of what you’re spending, where, and what can change to help you get to the goals that you’ve set.  Make sure you see a budget as a positive change instead of a limit or a restrictive additive when you think how to make a personal budget plan. It’ll help you make the absolute most out of it.

#budgeting #budget #personalbudget #savingmoney #budgetplanner

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