Making a budget is a part of growing up. There comes a time in our lives when we start taking our earning and expenses seriously. It also makes us think about the money we could have saved and where exactly we are going with our lives. It is imperative to gain control over spending and make some realistic financial goals that can help us grow. This can be achieved only when one has a proper budget to stick to. This is why you need a personal budget which is a summary of expected incomes and expenses for a predefined period. Although, the word budget usually bring the thought of strict spending in mind but it should be more of efficient spending. When you will make a budget, it will show you what your expenses are and guide you how to go about it and also save money in the wake. So, here is a guide that can help you out in creating a great and realistic budget.
#1 Gather All Your Financial Statements
The very first thing that you will need to do before you sit down and start making a personal budget is to gather all your financial statements. This will include your bank statements, recent utility bills, investment accounts, and any other information regarding a source of income or expense. This is important because financial statements will help you in creating a monthly average. The more information you can gather, the better it would be. It always benefits when you are practical in the budget-making process.
#2 Write Down All Your Sources Of Income
Have all your financial statements in possession? Great! The next step is to write down the sources of your income. Whether you are working full time somewhere or part-time or have a steady job along with freelance work, all the incomes that are coming to you must be taken into account and counted. Regular paychecks usually have taxes automatically deducted from it, so you can count it as a net income. Record all the income as a monthly amount and then move on to the next step.
#3 List All Your Monthly Expenses
It is now time to count all the expenses that you have every month. In the list, mention all the expected expenses such as rent or mortgage payment, utility bill, car payments, dry cleaning, entertainment, etc. But, you must also mention miscellaneous expenses that can expect in the near future because it is always better to stay prepared. All in all, the list will consist essentially of everything you spend money on. If you are planning to buy something, don’t forget to add that too.
#4 Fixed And Variable: Two Categories To Break Your Expenses In
To be clearer on this, fixed expenses are those that stay the same each month and also are a part of the way you live. In this, your house rent or installments, car payments, utility bills, cable or internet service, credit card payments, etc. will be included. These are such expenses that will stay the same and hold a major part of your budget.
On the other hand, variable expenses are the changes that occur in your expenses from month to month. This will include items like groceries, gasoline, entertainment, eating out, and gifts, etc. This category is important when you will need to make certain adjustments.
#5 Bring Your Monthly Income And Expenses To A Total
You have two lists: one stating all your incomes and the other one with the expenses. Total both the lists and see what the final numbers are. You are off to a good start if your income is more than your expenses. This means you can keep some amount for savings which is very essential as it helps in dealing with unforeseen circumstances. But if the expenses are exceeding your income, then you will need to make some changes in your lifestyle so that you can bring the number down.
#6 Make Certain Adjustments
In the above point, we mentioned that if your expenses are higher than your income, you will need to bring about some changes. It might look like a difficult task but when you will count your expenses in a practical way, you will realize that there are some things that you don’t even need at the moment. For example, you can get rid of the gym membership or buy certain things later when you have more income and fewer expenses. So, go through the expenses properly and see where you can make the change.
Budgeting Mistakes To Avoid
When you will start making the budget, there are some mistakes that you will make but there’s nothing to be discouraged about. It is part of the process and getting perfect in something that does take time. Here, are some budgeting mistakes people usually make. Read through in order to avoid making the same ones.
- Setting unrealistic expectations – don’t make a budget that is filled with expectations that you might not be able to fulfill. This way you will end up spending more money then you intended. So be clear about the things that you can actually do.
- A budget based on gross income – It is important to go through your bank statements properly to see how much money you have in hand to make the payments and other expenses. This is because there is a chance that you might count money overall than what you are actually bringing home.
The Conclusion: Review The Budget Regularly
Congratulations! You have made your first personal budget successfully. But your work doesn’t just end here. It is important to review your budget regularly or on a monthly basis to make sure you are on the right track. See, what new expenses have come in and what the current status of your income is. You can also make a new budget after a few months and compare it with the old one to see how you have progressed and in what terms.