How to Design a Personal Budget
A personal budget is an important tool for managing money. Without a budget, people may overspend and aren’t sure where the money went. A budget creates a financial plan for the money coming into the household and the money going out. Budgeters can also take an honest look at how money is being spent. This allows you to make the necessary adjustments to build financial health.
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Instructions
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Add up income. List net income (money earned after taxes) on a piece of paper. People who don’t make exactly the same amount each month should average earnings from the past six months. This will provide a general figure for monthly income.
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List expenses. According to MSN Money, people typically face several large expenses. Add up expenses for housing, transportation, food, utilities and entertainment. Also, add in debt expenses. For example, if you pay $100 toward a credit card balance monthly, include this expense. Tally up all categories of spending to evaluate total expenses.
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Make changes to the budget. Subtract expenses from monthly net income. If you don’t have much left (or if you’re spending more than you earn) it’s time to trim expenses. For most households, housing is the largest expense, according to MSN Money. Consider getting a roommate or downsizing to a smaller home or apartment. Transportation can also be a large expense. Modify your transportation budget by carpooling. Sharing driving responsibilities with another person can trim expenses by as much as 50 percent.
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Carve out money for savings. After trimming your budget, it’s important to allocate funds to an emergency savings account. When unexpected expenses occur (such as car repairs), you can tap into savings instead of using a high-interest credit card. Consider setting up automatic deposits to your savings account.
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Tips & Warnings
Consider using a budgeting calculator. These calculators, which are available through companies such as Bank Rate (see Resources), allow you to easily calculate and forecast monthly expenses.
Budget more than the minimum monthly payment for debt obligations. Making only minimum payments will significantly increase financing costs. These funds could be better spent on savings or other budget categories.
References
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