How to Make a Personal Budget
Everyone should have a personal budget, regardless of age, income or asset level. A budget tracks and guides your spending and investing and can spur you to increase your income. Creating a workable budget takes time and practice, but soon it will become a habit. It's the cornerstone of personal finances for most people, and an important step in mastering your financial journey.
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Instructions
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Make a Personal Budget
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Gather your financial papers and documents. Include all W2 and 1099 forms from the previous year, current pay stubs and other income statements. Collect all bills, credit card statements, loan statements, utility bills and recent receipts for cash purchases. Also include your bank account statements, which will give you an overall idea of your spending.
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Sort your papers into categories. The first main division, of course, is income and expenditures. For income, be sure to include not only your job (take-home pay), but any child support, alimony, retirement, social security, disability, interest, dividends, investments, insurance settlements and side income from self-employment.
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Sort your expenses into categories for housing, utilities, health care, food, entertainment, clothing, child care or school, transportation, taxes, savings, investments and miscellaneous (pet care, gifts, holiday expenses, hair care, etc.). This step will take some time, but it only needs to be done once. After you have your list, changes to the dollar amounts can be made as needed.
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Track your spending by saving your receipts for every item you buy for a month.
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Budget for repair and maintenance of your home and vehicles. Estimate repairs based on your past bills, taking into consideration that each year the item is older and will likely need more repairs. Budget 1 percent of the purchase price of your home for yearly repair and maintenance.
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Budget for replacement of large-ticket items like furniture, cars, appliances, and heating/air conditioning systems. Divide the cost of replacing the item by its estimated remaining usable life. Budget this amount each year. For instance, if your heating, ventilating and air-conditioning system has a 10-year lifespan, and it is six years old, you will have to put aside one-fourth of the cost of replacement each year to purchase a new system when it's time.
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Total your income and expenses. Expenses can not exceed income, so tweak your expense allocations if necessary. Once your tallied income equals your planned monthly expenses, your personal budget is ready.
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Tips & Warnings
Budget for charitable contributions and/or tithes.
Budget for savings and investing. Make sure your budget includes the things you care most deeply about.
Include long-term savings for children's college funds.
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