Making a personal budget is beneficial in that it allows you to see whether your expenditures fit within your income. A personal budget also can reduce the temptation to overspend, since you know how much money you must allot for your bills. Both of these advantages of budgets may make it easier to reach personal and financial goals.
The first step in planning a budget is to write down all of your purchases regardless of their price. Then tally fixed expenses like your utility bills or mortgage. Third, add your purchases total to your fixed expenses total. Calculate your total net income. Lastly, subtract the purchases and expenses combined total from the net income. You must make adjustments to your expenditures or increase your net income if the result is a negative balance.
After tracking your expenses for a minimum of one month, you should have a rough estimate of how much you might spend in each category (e.g., clothes, food, medical expenses) in the future. Continue to track your expenses over the next six months. If the true expenditure in each category exceeds your estimate, put a higher percentage of your income toward that category.
As you track your expenses for your budget, you discover what items have been important to you. For example, if you value organic produce, you may see that you spend more on food than someone who does not buy organic items. Implementing a budget thus means you make adjustments based on personal values. Any time you reduce or eliminate funds in a budget category, you indicate that the category is not as important.
Budgeting as a Continuous Process
Personal budget planning and implementation is not a "do-it-and-leave-it" activity. Over time, circumstances may change, or items that were priorities may become less important. It also takes time to gather data you need to form the budget and to analyze how effective your budget is. It is not unusual to be adjusting a budget throughout the entire year. Be realistic about what it will take to put the budget together so you can plan to use your resources appropriately.
In most cases, planning and implementing a simple personal budget does not require assistance. However, some people who need a budget the most -- those who are experiencing financial difficulty -- benefit from having someone else review their finances. Independent contractors and companies will provide budget counseling for a fee. These individuals and companies know how to streamline the budgeting process and can make suggestions for how to make your budget more efficient and practical. The more money involved in the budget, or the higher the debt-to-income ratio, the more sense it makes to enlist the aid of such professionals, as there is financially more at risk.
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