Building a Personal Budget
Before I begin to detail ways to build a budget I will first like to touch on the reasons you should be maintaining one. A budget lets you know exactly what you are spending your money on whether it be food, clothes or other general expenses. It ensures that you are spending your money on what you need to in order to accomplish any financial goals you may have for yourself. By having a budget it can open your eyes to exactly how much money you are spending on recreational stuff such as clothes or partying. I am going to share some ways that will make it easy for a beginner to build a budget that will work best for you.
Learn how your income and expenses work for you
Everyone’s income and expenses are different. By writing down all your income and expenses it is now easy to make any necessary changes.
PART A: Make a list of all your monthly income – wages from your job, child support, rental income or royalties. This list should include any income that you receive on a consistent basis.
PART B: Make a list of all your monthly expenses – this list should include everything that you have to pay each month. Ensure that you capture everything. This list should include your rent, electricity, water bill, phone bill, credit card debt, loan installment payment, groceries and transportation cost. This list captures your expenses that you cannot do without paying each month.
PART C: Make a list of all your other expenses that you have regularly – this list should include things such as your hairdressing fees, nail maintenance fees, morning coffees, dining out or that new purchase of a clothing item. This is the list of your discretionary expenses – those that can be easily adjusted or eliminated.
As you look at this list you will begin to see where the majority of your money is going. Your income should be primarily dedicated to your necessities. If you are having problems setting aside money for saving each month you should eliminate/reduce one of your expenses in Part C as not saving any of your income each month is not an option for a financially responsible individual.
What if you are in a deficit?
What if you completed the exercise above and realize that you are actually in a deficit? You need to adjust your expenses to match your income. This situation cannot continue for too long before it becomes a financial disaster. It means that you are not currently living within your means and its time to adjust your monthly expenses to make the most of your income.
Your focus needs to be on reducing your expenses as it’s not that easy to increase your income. You need to find ways to transfer your money into debt repayment and savings. Remove splurges or wants and focus on your needs instead. If things are really bad right now i.e. you are operating with a large deficit then you may need to consider taking up a part time job.
Conclusion
By using the simple tools like living more frugally, or adding an extra source of income, you can easily create a budget surplus that can pay off your debt and put more money into your savings account. It is all about learning to understand how income and expenses work for you. By putting all this on paper or in an excel sheet you can easily look back at it, make any necessary changes and focus your income on outstanding debt or savings.