8-Simple-Steps-to-Make-Personal-Budget-That Actually Works

8 Simple Steps to Make A Personal Budget That Actually Works

A budget is an indispensable tool to have in your financial toolkit. It makes your money work for you. It puts you in control, and saves you from a lot of unnecessary stress and sleepless night.

You will have to create your own budget, as it’s something very personalized. We will guide you on how to go about it in eight easy steps.

1- Choose a Template

You might like the old-fashioned pen and paper method, but it’ll soon get cumbersome and time-consuming. It’s far more convenient to use one of the many budgeting apps and spreadsheet templates available to create your personal monthly budget. These tools and templates save time and effort. They generally have a friendly, easy-to-use design, along with designated fields and built-in formulas to do all the calculations for you. 

2. Gather Your Financial Statements

To start with, gather up all your recent financial statements, such as bank statements, credit card bills, utility bills, recent receipts and mortgage statements. You need a clear picture of all your incoming and outgoing money. A monthly average of your income and expenses is a crucial piece of information to know as you embark on the budget-making journey. 

3. Calculate Your Total Expected Monthly Income

If you receive a regular monthly income with taxes automatically detected, you can simply use the amount you are receiving at the end of each month. If you have a business, or are self-employed, or have other sources of income, you will have to factor in all your income sources, and calculate the total amount. For variable incomes, you  might have to calculate the average monthly income for the past year. For freelancers, it might be safer to use the lowest-earning month of the past year, rather than the average, as the baseline when setting up a budget. 

4. Calculate Your Total Expected Monthly Expenditure

Write down a list of all the expenses you expect to have during a month. This list could include medical expenses, educational expenses, rent, car payments, insurance, groceries, bills, entertainment, personal care, eating out etc. 

Your receipts, bank statements and credit card statements from the previous few months will help to make these categories. Expenses like groceries and entertainment etc. will vary from month to month. You can enter a reasonable average for these categories. Expenses like rent payments will remain fixed. If you plan to save a particular amount each month, you can include it as a fixed  payment too. 

5. Try the 50-30-20 rule

If your income is higher than your expenses, you can try the popular 50-30-20 budgeting rule to allocate expected monthly expenditure. In this philosophy, 50% of the expenses are allocated for needs, 30% are kept aside for wants, while 20% is committed to savings and debt returns. This is a very simple plan, but the results are astounding. When applied over the long term, it allows you to manage your debt, indulge lavishly every now and then, and save generously for rainy days and retirement.     

6. Make adjustments as needed

If your expenses are higher than your income, you obviously need to increase your income or slash out all unnecessary expenses for some time. Once you have the categories and expenses listed, it is easier to figure out from where you can cut down and trim to balance your budget. Ideally, all your income should be accounted for towards a specific expense or towards savings.  

7. Track and monitor

Once you have a system in place, you can add in your daily expenses in your budgeting spreadsheet or app. At the end of the month, it will total your income and expenses and allow you to track your progress in each category. In this way, you will be able to identify and overcome your overspending areas. A comparison of expected and actual spending in each category will quickly give you an idea of what is upsetting your budget. You can also keep an eye on expenditure spent in each category during the month to ensure you don’t overspend in any category.  

8. Tweak as required

Even the best of plans are not set in stone. Life happens. Change happens. Situations arise.  Accordingly, our total income as well as our expenditure requirements in each category change. It’s a good idea to revisit the original template every few months to see what’s working and what’s not. This will help ensure that your budget consistently reflects your changing financial realities and goals. 

Finally, you can feel on top of your budgeting game. Finally, you get to control what you earn, where you spend and how you save.

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