What is a personal budget?
A personal budget is a summary of your income and expenses over a specified period, which is usually one month. A budget allows you to see your income or how much money you expect to bring in, compared to all required expenses, such as mortgage or rent, insurance, utilities, and any unnecessary or discretionary spending.
A budget also gives you a business plan and a clear picture of where your money ends up each month. A budget will help you achieve the goals you are working on; Whether it's getting rid of debt, saving for retirement, or just trying to get control of your purchasing bill.
And when it all boils down to it, a personal budget is just a plan for your money. A budget means that you spend purposefully before the next month begins.
yes! Creating a successful personal budget is a dilemma that everyone has faced at least once in their life. But successful budgeting doesn't have to be difficult or time consuming if you are a designer and start following the successful budgeting tips in this article.
Why do you need to prepare a personal budget?
Well, if I asked you to tell me how much you spend on eating out or buying gas each month, would you specify? What about the real cost of living?
This is the main reason why you need a budget; So you can plan and keep track of where your money goes! Most people have no idea how much they spend on a monthly basis. All they know is that by the end of the month, their bank accounts are almost empty and they are waiting for their next paycheck.
People are curious about budgets for various reasons. Maybe they are in financial trouble, maybe they just want to buy something big, like a house, or maybe they want to make sure they are comfortable in retirement.
However, one thing is certain; You won't create and stick to an effective budget unless you really want to.
So the first thing you should think about is why do you think you want to create a personal budget. Make sure the cause is very strong. can be negative; Like trying to get yourself out of a financial bind. or positive; Like buying your first home.
But is this reason important to you? Does it motivate you when you think about it? Are you moved when you think about your goal for a personal budget?
If it's like that, that's fine. Perhaps you have what it takes to create and follow a successful personal budget. But let's examine your reasons for budgeting in more detail.
1. Achieving a financial goal
It would be almost impossible to achieve a financial goal without budgeting, of course it can be done! But with a lot of trouble and wastage.
Thus, once you set up a personal budget you can allocate a specific amount to achieve your goal; Whether it's savings or paying off debts. It will also be easier to speed up your plan by reducing spending in one or more areas, and shifting that money to your “main goal.”
2. Determine the places of waste
Most people who make small everyday purchases (such as coffee, breakfast, or snacks) are shocked to learn how much they really spend on these details.
It's easy to spend money on a cup of coffee, a candy bar in the morning, or a soft drink from a vending machine without even thinking about it. However, if you have created a personal budget, it will be more difficult for these expenses to escape your attention.
So preparing and sticking to a personal budget (and adjusting it as necessary) will help you assess this type of spending and allocate certain amounts to these details, and try to adjust them in line with your economic situation. Thus deciding if you should transfer money from one category to another, or change your habits!
3. Dealing with financial emergencies
We often hear the popular saying “Save your white shark for the black day,” as if it assures us the importance of thinking about emergency circumstances that may need more money!
For example, if you find out today that your job will cut your salary, or take mandatory leave, with unpaid days, how would you deal with it? Will you be able to make the necessary adjustments?
If you keep track of your spending (which is necessary to keep track of your budget), it will be easy for you to make these adjustments. You'll be able to look at each area of spending and decide where you need to cut back, or even if it's worth trying to increase your income.
4. Ensure that no excess is spent on frivolous items
Once you allocate your income across living expenses, debt repayments, and savings, you may find that you have money left (which is a problem we all like to face).
Instead of just wasting that money on your spending (something that usually happens without a budget), you'll be able to give that surplus a new task. This of course depends on your exact situation.
You can choose to speed up your debt repayment, increase your savings, or perfect your investment strategy. The point is that having a budget will allow you to easily identify these opportunities.
5. Helping develop discipline in multiple areas
This is achieved in several ways:
- First, you are forcing yourself to control your spending, which requires discipline especially if this is the first time you are doing it.
- Second, by constantly monitoring your finances and having to make small adjustments, you are more aware of every financial decision you make.
By holding yourself accountable for every dollar you spend, you will tend to value your free time in the same way. For example, you will begin to think about the value of your time in terms of money and missed opportunities, which may prompt you to re-evaluate your decisions.
These are just some of the reasons why you need to prepare your personal budget, as well as change the way you think about money.
Steps to preparing a successful personal budget
First, set your financial goals
One of the most effective ways to achieve your financial goals is to create a personal budget plan. For example, are you saving up to buy a house, planning a vacation, or looking for ways to get out of debt?
To set up a personal budget, you should have a clear goal of saving money and spending less than you earn each month. In addition, a budget helps you understand where your money is going and how to increase your profits.
So, before anything else, decide what your goals are and commit to achieving them. Meanwhile, accept that lifestyles are changing, so you need to readjust and adjust your budget plan accordingly to achieve your goals.
Whether it's a down payment for a used car or a brand new one, your goals based on your financial situation keep you going.
To create your budget, first determine how much money you need to achieve your goals. for example; Find out the down payment you need to buy that car, or the price of a ticket for a well-earned summer vacation.
Focusing on these dreams, your budget begins to take shape to help you shift your goals from “One day I will buy the car” to “I can afford the car of my dreams this year!”, and so on…
Second, select your income
Do you have a regular salary? How much profit do you get from your business each month? Do you have any other source of income?
Start by listing the money you plan to have during that month; Regular salaries and anything extra from sales, rent or self-employment.
If you can know the exact amount of your income for the month, it is easier to prepare a realistic personal budget. In turn, to develop a complete picture of how much money you are bringing in:
- List your annual salary you take home (the amount of your salary you get after taxes and deductions).
- Add the income from second jobs or summer jobs.
- Evaluate any other sources of income, including interest and dividends.
- Add up all the money received for the year, and divide that by 12 to find your average monthly income. This is the amount of cash you have to work with, and the first line of your budget.
Third, clear your debts
Student loans and credit card debt make many individuals feel trapped, and a budget is the perfect way to break free.
To deal with your debts no matter what, decide what you have to pay each month; From fixed loan payments, minimum credit card payments, etc.
For your budget, focus on the "what should you pay" part to get started. Subtract this monthly total from your monthly income to see how much you have left to cover expenses.
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Fourth, keep track of your expenses
Now that you know your income each month, it's time to find out how much money you're spending. So keep track of your expenses carefully, that means assigning a job to every dollar you earn before you get it.
How? Cover your expenses by categorizing expenses into three categories: fixed, variable, and irregular.
Fixed expenses: These are the same every month. For example, rent, telephone, electricity or internet subscriptions. They are expenses that you cannot control.
Variable expenses: such as food, transportation, entertainment and any personal spending. Which comes every month but not exactly the same amount, which are the expenses that you can control (reduce or increase as needed).
Irregular Expenses: Expenses that are irregular (such as car insurance) or unexpected (such as car maintenance or home amenities) can be anticipated.
Now, start by listing the fixed expenses you pay each month. For variable expenses, determine the average monthly amount you spend: Reviewing credit card bills, checking records, or receipts can help you come up with realistic estimates. Add it to your fixed expenses to see what you usually spend each month.
List your irregular annual expenses, those you know are coming (such as car insurance). You can also set up a fund for irregular expenses, so you will have the money on hand in case they occur. This is the best place to add some money towards your first financial goal.
Calculate all of these expenses, and divide the total by 12 for the monthly amount. Add that to your fixed and variable expenses, and that's your monthly cash flow.
The idea is to be as accurate as possible to ensure the budget is complete. Remember, a forgotten bill greatly spoils your plan. It is always a good idea to add 10% of miscellaneous expenses to your total figure.
Fifth, subtract your expenses from your income
Calculate the final result to arrive at the bottom line, by subtracting the monthly cash outflow from the amount of income minus debt from step 3.
You will encounter one of the following three outcomes: the end result will be zero, positive, or negative. If it is zero or positive, you can go to the next step. If the end result is negative, reevaluate your expenses to see what you can cut right now; Then follow the steps.
Sixth, create an emergency fund
Create an emergency fund so you can have financial security to deal with any unexpected expenses. When setting up an emergency fund, it is recommended to provide the equivalent of three to six months of living expenses.
This way if you lose your job, need unexpected home maintenance, or other emergencies, you can still support yourself financially.
Start by taking a small amount from your salary or checking account each month and transferring it to an emergency fund account. The amount will be a small part of the surplus money you have after making the previous calculations. And that in some months and not monthly, depending on your financial ability.
Seventh, hire an accountability partner
Anytime you make big changes to your spending habits, it's best to seek support from others (friends, partners, family members...) who want to see you succeed. This applies to your personal budget as well as your lifestyle.
For excellent results, get someone to help you stay within your personal budget no matter how hard it is.
Most importantly, stay away from people who don't share the same ideas as you when it comes to a personal budget. It is their kind of negative energy that makes you give up on your plans prematurely!
Eighth, prepare to be flexible
Nothing is guaranteed in life and surprises happen. The cost of living may rise when you least expect it. Therefore, sometimes you have to change your personal budget without warning. On the other hand, you may get a raise or win a lottery which should also be reflected in your personal budget.
What all this means is that there shouldn't be anything static when it comes to making a personal budget. If major changes occur in your life, review your plan and make any necessary adjustments.
And be sure to prepare a new budget before the beginning of each month. Get ready for everything coming your way next month.
You need to update it in order to plan and track your spending. This goes both ways; If you don't keep track of your spending, setting a budget is pointless. So you should evaluate your spending periodically to ensure that you are on the right track.
And in the end, may I let you know a little secret? The way you will really earn with a budget is to keep track of your transactions through the steps we have mentioned. This means that you put every expense and every bit of income into your budget throughout the month.
This helps you stay accountable to yourself and your money! You won't overspend because you'll know what's left in each budget line.
The most important tools for preparing a successful personal budget
Now that you know how much money is coming and where it's going, set up an easy way to monitor your budget. We all need a little help getting our finances in order, and with so many great budgeting tools and apps available, there's no reason why we can't start doing it right now.
To keep track of your budget with minimal effort, online software and apps that may link to your bank and credit card accounts make controlling your finances easy.
Here is a list of popular free budget apps to help you get started:
1. Mint App
If you want to try budget planning for free, Mint is the right choice. Apart from the free access, it has many features that you can try along with its ease of use. It has a vast user base of more than 25 million.
Anyone can use this app and do all kinds of budget work easily. That is, it is a hassle-free budgeting app. You can easily link all the accounts that you have. The app will, in turn, automatically track your income and spending.
In terms of features, it allows you to do all the usual work like calculating income, tracking expenses, choosing a financial goal, and the like. Moreover, you can always keep track of credit cards and bills.
In fact, this is what every beginner wants from a budget app. Let's say you want to set a financial goal and keep track of everything around it. Together with the standard calculation, you can do continuous tracking to get the best performance and result. In this case, Mint is the best budget app without any arguments and with a nice interface.
Mint App Download Links:
- Link to download Mint app on Android
- Mint app download link on IOS
2. Personal Capital
One of the best free budget apps. When most budgeting apps focus only on your current financial situation, they inevitably aim for the future.
You can not only manage recent income and expenses but also prepare a savings plan for the future. In other words, the app gives you analytics data to determine your savings amount.
Regular savings and potential future value make it easy for you to calculate savings after retirement. If you have a certain future planning, this is the best app to focus on that goal. Moreover, this application does not cost anything. So, you get a decent app to prepare the perfect personal budget for retirement savings for free.
If you have a specific goal for retirement, this app will help you the most. It is especially ideal among the best apps for long-term budgets. It has all the income and expense tracking services for preparing a complete budget plan.
It is also amazing at synchronizing bank accounts, monitoring all accounts together, planning regular budget and retirement budget with great tracking and analysis.
Personal Capital App Download Links:
- Link to download Personal Capital app on Android
- Link to download Personal Capital app on IOS
3. PocketGuard App
It is a versatile budgeting app, excellent to use for daily plans. It has free and paid services. Moreover, you can also get a trial version to test its performance. You can also easily link and sync all financial accounts.
The Overview tab allows you to monitor your budget plan very quickly. And its billing tracking page makes sure to remind you so you don't miss a payment. This tracking goes the same way with debts or any other payments.
Thus, with comprehensive income and expense tracking, this app allows you to do basic things like collect income, track expenses, keep track of reserves, etc. That is, you can quickly get a comprehensive understanding of your money and potential savings. In addition to the ease of syncing with bank accounts.
This app is rather cool with an attractive and very easy interface, it has something obvious that it doesn't come with other apps; All necessary features are present. With a simple tracking design and a great optimized algorithm to keep track of all financial information, this budgeting app is perfect for both beginners and professionals.
PocketGuard app download links:
- Link to download PocketGuard app on Android
- PocketGuard app download link on IOS
4. Google Sheets App
It's not exclusively a budgeting app, but many people still prefer the old-school way of keeping track of their finances on a spreadsheet.
Just fill in the cells with your numbers and calculations, format them just as you would in Excel and calculate income and expenses. It's free to use once you have a Google account, at which point your file will be automatically saved in the cloud. With the ability to modify it whenever you want.
Google Sheets app download links:
- Link to download the Google Sheets app on Android
- Google Sheets app download link on IOS
Conclusion
Now you can easily keep track of your budget without worrying about bills and focus more on spending and extra expenses. This way, you can decide how much you should spend each month against your income (i.e. what you have and what you owe).
to remember! By developing a budget and preparing a way to track it, you create a roadmap to financial freedom. But the key to sticking to your budget is to remain flexible and realistic. The numbers provide guidelines, and you can adjust them as you see how your budget works best.
Share with us, what other strategies do you use to ensure that your budget plan lasts and delivers the kind of results you're looking for? We are glad to hear your opinions.