How to Prepare a Personal Budget

Creative Budgeting Techniques

Learning to prepare a personal budget is not a difficult task. Sticking to your personal budget, now that's a different story altogether. It takes self-discipline and a forward looking attitude to properly manage your money and make your budget work for you.

Things You'll Need

• Good Organization
• Self-Discipline
• Computer or Pen/Paper

Instructions

1. Decide How You Will Determine Your Monthly Expenses:
   There are two ways to do this. First, you can go through old records and try to recreate what you spend in a month. Secondly, and more preferable, is to actually track your expenses over the course of a month.

2. Create a System to Organize Your Monthly Expenses:
   Make a spreadsheet that includes the following fields: Date, Expense Title, and Amount. If you are not able to use Excel or another spreadsheet program then create another system on a computer or on a pad of paper that keeps track of these things. ThePrysm.com has a great tool to help you track your monthly expenses which can be found at http://www.theprysm.com/enterexpenses.aspx.

3. Start Tracking Your Expenses to Help You Create Your Personal Budget:
   Every night fill in all the money you spent during the day. You can either keep receipts or you can carry a little pad around with you to write down what you spend. No amount that you spend is too little. Record every amount that you spend separately.

4. Summarize and Categorize Your Monthly Expenses:
   Once you have accounted for every dollar you have spent in a months time, combine similar expenses to get monthly totals. In other words, add up all of the grocery spending for the month and get one number. Add up all of the money you spent on gas for the month and get one amount. You can combine things like going to the movies with other entertainment type expenses. Do this for all expenses.

5. Separate Fixed and Variable Expenses:
   Fixed expenses are the ones that do not change such as your rent or car payment. Variable expenses are expenses that do change from month to month such as your gas spending, grocery spending, and entertainment spending.

6. Add Up All of Your Expenses:
   Add up your fixed expenses and get a number. Add up your variable expenses and get a number. Then add both together to get one number. You will use these three numbers to help you create your personal budget.

7. Compare Your Expenses with Your Income:
   Add up all of your income for the month and compare it with your total expenses. How does it match up? Do you have more income or more expenses? If your monthly spending is more than your monthly income you need to see where you can reduce your spending. Even if your income is more than your spending you may decide to cut some spending.

8. Look to Cut Some Fixed Expenses:
   Most likely there is nothing you can do to reduce your fixed expenses as rent, mortgages, and car payments don't change. There are some fixed expenses you can change though, by either canceling the service or changing the service plan or provider. Gym Memberships, cell phone contracts, and cable service are all fixed expenses that you may be able to change or cancel.

9. Set Limits on Your Variable Expenses:
   If you are setting out to make a personal budget you most likely want to watch your spending. Your variable expenses are the ones that you have the most control over. Set limits on your spending each month for food, entertainment, fast food, clothing purchases, electronics purchases, etc. See what you currently spend and cut that back to reasonable amounts.

10. Factor in Money You Should Be Saving and for Vacations:
    Don't forget to budget in money each month to save for retirement, rainy day savings, vacations, and any savings for special things such as a home or car.

11. Review Your Personal Budget:
    Look at this new budget you have created which includes your fixed expenses, your variable expenses, and your various savings plans. Make sure it is less than your monthly income. Is it a reasonable budget?

12. Live Your New Personal Budget:
    The hard work comes when trying to stick to your personal budget. Everyone has their own system to do this. Some put money in envelopes so they know how much they have to spend in each category each week. Others just track their expenses and look to cut back on spending when they start to get close to the budgeted amount. You need to figure out what works for you and do it

Tips & Warnings

• If you spend too much in one category, look to cut back in another.

• Some months you may go over you personal budget. Look to make up the difference the next month.

• Save any money you have left over at the end of the month.

• Be sure your budget is reasonable and attainable or you won't be able to follow it.

• Come up with an organized system that you can follow for knowing how much you are spending each day, week, and month. Otherwise you will lose track.

Resources

• ThePrysm.com Money Tracker Program