Setting up your personal budget requires a practical approach. The following guidelines will help you plan a working budget to embark on this journey.
1. Gather all your financial details. That will include all of your bank accounts, credit cards, and insurance documents—everything to do with your personal finances. These details will be needed to start your quote.
2. List all sources of income. This includes salaries, rental income, and regular dividends and interest.
3. Categorize your expenses starting with your commitments: List each item under headings such as:
- Housing: mortgage or rent.
- College and professional fees.
- Insurance: health, car, home, content and life
- educational costs
- Nursery and child care
- Loans: car loan, student loan, bank fees and interest
- Land tax or fees.
- Other payments required as commitment: motor vehicle license.
- Investment: yes, commit to your future and pay yourself!
4. Make a list of needs: Again, list each item under the headings:
- Food, groceries, gas (gasoline), home maintenance, security.
- Utilities: gas, water, electricity, garbage collection, telephone charges
- School lunches, household supplies, car maintenance, internet service, dry cleaning, monthly parking.
5.Other expenses. Daily personal expenses that cover: lunch at work, snacks, coffee, drinks, newspapers, magazines, batteries, postage. Family and personal allowances: parties, entertainment, weekend outings, movies, concerts, other entertainment and events, home improvement and decoration, magazines and other subscriptions, dining out and fast food. Also includes: clothing, hobbies, personal recreation, books, CDs, manicures, hair care, mending, shoe repair, personal and family gifts, gardening, film processing, video rentals, sports and fitness, donations, computer software and other related items.
6. Once you have listed all your expenses, add the total expenses and deduct these from your income. You will need to convert everything to monthly or weekly. This means that bills that are paid once a year need to be divided by 12 to get the monthly figure. Convert quarterly payments to an annual figure, and then convert them to monthly. It is important that you include bills that are not paid monthly to ensure that the money is available when the bill is due. Put the money in an interest-bearing account.
7. Do you need to adjust your budget? When you deducted expenses from your income, did you have any money left over, or did you find that your expenses were more than your income? If your situation is the latter, you will have to make some adjustments. Commitments cannot change. Need-wise, you may be able to cut down on groceries and find cheaper utility providers or try to save costs by being mindful of turning off lights etc. But it is the category of other expenses that has the greatest adjustment capacity, since many of them are not necessary and can be reduced or eliminated. Review your budget regularly to make sure it’s still working for you.
Now is the time to start a personal budget and these guidelines are designed to ensure that your budget is truly a work budget – one that works for you!