Creating a budget may not sound like fun but it is necessary if you want to stay financially afloat. Before you start creating your personal budget, it is important to recognize that you have to be detailed if you want it to work. In the end, your result should show the sources of your money and where it goes. Here is how to create your personal budget.
Assemble all your financial statements
This includes your bank statements, utility bills and all the information pertaining to your incomes and expenses. The importance of this step is to come up with a monthly average. Therefore, the more information you gather, the better it will be for your budget.
Write down your income sources
If you are self-employed and you have some external sources of income, you need to write them down as well. If your income comes in the form of a standard paycheck that tax is deducted from, you should write your net pay. Write down this whole income as a monthly quantity.
Write down your expenses
Write down a list of all the monthly expenses that you expect to incur. This list should include your mortgage payment, groceries, insurance, entertainment and utility bills among others. Basically, write down everything that you plan on spending money on.
Divide your expenses into two categories
The two categories are fixed and variable expenses. Fixed expenses are the ones that remain fairly unchanged each month and they are vital to your monthly living. They include mortgage payments, auto insurance and other permanent fixtures in your monthly expenditure. Variable expenses on the other hand change on a monthly basis. They include entertainment, groceries and gas money. This category of expenses is vital when making adjustments.
Sum your income and expenses
If your end result shows more income and fewer expenses, then you are on the safe side. It means that you can prioritize the surplus to some parts of your budget so that you can pay your debts off faster. If your expenses are more than your income, you need to make some changes in your expenditure.
Adjust your expenses
If you have perfectly listed all your expenses, the end goal is to make your income equivalent to your expense column. This would mean that your earnings are accounted for and planned for certain expenses. If your expenses outweigh your income, you should make changes to your variable expenses. Cut out the variable expenses that are not necessary.
Assess your budget on a monthly basis
It is important that you review your budget monthly so that you can stay on track. After you make your budget for the first time, sit down and compare your monthly expenses to your actual expenses then make changes accordingly. This will show the areas that you need to improve on and those that you did well in.
When you make a personal budget, every penny that you earn will be accounted for. This means that you will live within your means and not spread yourself too thin. If you do not want to create your own Excel sheet or budget forms, try using a personal finance website such as Mint.