How to Create an Easy Personal Budget
A personal budget provides a guideline for spending and managing money. Having a budget helps you to keep bills paid on time and have money to cover personal expenses. Budgets need to be updated often to account for income and expense changes.
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Things You'll Need
- Copies of all your bills
- Receipts for all purchases
- Budget notebook, budget Excel worksheet, Quicken software or Mint.com account
Instructions
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Calculate your net monthly income from all sources, including your paycheck, a spouse's paycheck and any other type of regular monthly income. If your monthly income is irregular, calculate your average income for the last six months and use that amount as your monthly income figure. Net monthly income is income that is left after taxes and other deductions that are automatically taken from your gross monthly income.
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Gather all of your bills and list your expenses. If some bills vary from month to month, such as your electricity bill, calculate the average amount paid for the past few months. Common monthly expenses include mortgage or rent, electricity bill, phone bill, Internet bill, cell phone bill, natural gas bill, water bill, automobile insurance, home insurance, credit card bills, loan payments and medical bills.
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Keep all your grocery and gas receipts for at least a month to determine what you spend on groceries and gas each month. Add these items to your list of expenses.
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List other personal expenses incurred on a regular basis, such as clothing expense, haircuts, manicures, eating out and entertainment expenses such as movie theater tickets. If you have children, make sure to add expenses for them, such as clothing, school lunches, activity expenses and allowances. Also, if you have pets, remember to account for monthly food, grooming and vet expenses.
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Calculate the percentage of your income spent on different expenses by dividing the amount spent on one item or a group of items by the total amount of your net income.
Financial experts such as Dave Ramsey suggest that a certain percentage of your income be dedicated to different expense categories. For example, Ramsey suggests that you spend 25 to 35 percent on housing (mortgage or rent, real estate taxes and homeowner's insurance), 10 to 15 percent on transportation (car payment, automobile insurance and gas), 5 to 15 percent on food, 10 to 15 percent on charitable gifts, and 2 to 7 percent on clothing. Ramsey suggests that you allow the following categories 5 to 10 percent of your income: utilities (electricity, natural gas, water, phone, Internet), medical expenses, personal expenses (haircuts, manicures), recreation (movies, amusement parks), debts (credit cards and loans) and savings. While these are flexible guidelines, you should check your budget to make sure that you do not have a skewed budget. For example, if you are spending 50 percent of your income on entertainment, you are likely to have budget problems.
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Track income and expenses in a notebook dedicated to your household budget, an Excel spreadsheet, a software program such as Quicken or a free web-based program such as Mint.com.
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Determine your monthly budget deficit or surplus by subtracting the total of all your monthly expenses from the total of your monthly income. If a deficit exists, you will need to cut unnecessary spending from your budget.
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Keep your budget current and refer to it often. Failure to review your budget will likely result in overspending and possibly even a negative balance at the end of the month.
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Tips & Warnings
If you have expenses that are only due biannually or annually, such as insurance or real estate taxes, divide the total amount due by either six (for biannual expenses) or 12 (for annual expenses) and enter this amount into your budget. Transfer the monthly budgeted amount into a savings account so the money will be available when the bill comes due.
To save money for a down payment on a home, vacation, Christmas shopping or other large expense, divide the total amount needed by the number of months you intend to save money for said purpose. Then, add this amount to your monthly budget and transfer funds to a savings account each month.
Do not leave savings in your checking account. Bankrate.com suggests that you immediately transfer savings to a savings account on payday to reduce the temptation to spend your monthly savings amount on other expenses.
References
Resources
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