Budgeting (MP) Who needs a personal budget? Anyone who spends money. Matter-of-fact, as soon as you start spending money, it’s time to start tracking your spending and that’s the principle idea behind creating and following a budget.
By sticking to a monthly budget you’ll have a peace of mind. With your budget in place, you can more effectively manage your money, save for large expenses, and prepare for emergencies. There are many ways to create a personal budget but the tips below will help you create some sound principles…
10 Steps to Creating a Personal Budget
1. Set up your budget: Budgeting your money involves assessing how much you’re going to have available each month or each year. This includes the amount you’re starting with from savings and any financial loans, as well as the amount you’ll bring in each week through employment. Then divide the total by the number of weeks in the year. Plus add your expenses and that gives you a good idea of how much money you can spend each week.
2. Organize bills and receipts: Housing, utilities, car expenses, loans organized and filed each month in a folder or an accordion file. This will make it easy to retrieve information if you need to dispute a bill or track your spending history. Organizing your bills and receipts as you go along also makes it simple to file your taxes at the end of the year.
3. Record: how much you spend each week and what you spend it on. This will help you assess where your money is going and give you ideas on where to cut back. Also, read 10 Common Way Families Save Money to see where you can make any necessary spending cuts.
4. Credit cards: Use credit cards only for emergencies. Credit cards often cause trouble for some. The temptation to splurge on new clothes or an expensive night out can be strong. Especially if you’ve been living frugally for months at a time. A credit card makes spending money so too easy; it doesn’t feel like you’re paying for those things when no cash leaves your pocket or bank account. Recording where your money goes helps you understand the cumulative effect of small impulse purchases, which will, in turn, help you resist making them.
5. Miscellaneous spending: Take all of your expenses and total them. Then, take 10% of that total and put it into a “miscellaneous” category. This adds, even more, flexibility to your budget, helping to make sure that if you’ve omitted something from your calculations, you won’t go over budget.
6. Emergency funds: Your budget should also contain some personal savings amounts for retirement savings, college savings, an emergency fund, long-term savings, and any other savings goals you may have. Don’t wait until the end of the month to see what’s left–budget for your savings first. Remember, your emergency fund should be an essential component of the budget. It can help you with unexpected expenses like medical bills so you don’t have to pull income from other investments.
7. Pay yourself first: The old rule of thumb used to be –The 28/36 rule. It recommended that a maximum of 28 percent of a family’s gross income be spent on housing and a maximum of 36 percent be spent on all debt. Following that rule, you should have 36 percent of your gross income left over after paying your mortgage and bills. While these numbers make sense financially –I believe in the “pay you first” method, in which you set aside a certain amount of money in short-term and long-term savings first, then pay your bills, rather than the reverse. But in the end, you must decide which works better for you.
8. Record keeping: Just as there are many ways to create a budget, there are also many ways to keep track of it. Whether it’s through an online budgeting program like Mint or Quicken or on paper, stick to whatever works best for you. Make sure you approach whatever system you use in a manner that you are comfortable with. See examples budget sheets at Wiki.
9. Make adjustments: along the way. If over time, your personal budget results don’t match your expectations or financial needs, you may assume the plan is wrong. However, it’s likely that you simply uncovered unknown problem areas. Things that pop up will actually let you know what the real normal spending expense are. Just pay close attention to what your expenses are telling you.
10. Frugalize: If you ever want to be rich, you need to start saving money in the bank and start living within your means. One way you can start disciplining yourself is look for deals to save money. It’s simply a better choice. Today lots of millionaires come from middle-class backgrounds and most started out being frugal. Change your attitude about money; respect its power, and accept that no one is responsible for what happens in your life but you – and soon you’ll not only find yourself staying on budget but getting rich also.