Personal Budget

Starting Your Personal Budget

It takes time and effort to create your personal budget. But, remember, your efforts in creating a budget may allow you to get out of debt, purchase a home, or send your children to college. It is important to have a personal goal attached to your budget. This will keep you focused on living within the budget.

Begin by creating a personal budget worksheet to keep track of the most important finances in your life: your income and your expenses.

The second step is to determine your income. For many people, this simply means looking at their paychecks. However, be careful to notice other income also. Don't forget to consider investments, old stocks, savings bonds, and retirement fund contributions.

Next, track your spending. For one month, write down everything you spend your money on. This means your rent or mortgage, utilities, transportation, credit card payments, even that morning cup of coffee. Once you keep track of all your expenses, you can see exactly where you are spending your money.

Creating a personal budget is a simple math equation. You simply add all the numbers together for a month, adjusting as necessary to ensure you expenses do not exceed your income.

Calculating Your Budget

Now that you have added up all the numbers and determined your income and expenses, you may be ready to calculate a budget to meet your goals. If calculating your budget seems overwhelming, personal budget software can help with this important task.

To calculate your budget, subtract your expenses from your income. For instance, if your monthly income is $3,000 (after tax deductions), and your expenses total $2,500, then you have $500 in excess each month. However, if your monthly income is $3,000 and your total expenses equal $3,500, then you are $500 in debt each month. Even if you monthly income is $3,000 and your expenses also equal $3,000, you may not be comfortable with your budget. Look for places where you can cut back. For example, instead of purchasing coffee at Starbucks every morning, make coffee at home or only treat yourself to a latte on Fridays.

Maintaining Your Budget

Living within your means may not be easy. It may require sacrifice. This is why it is important to focus on your goals. Owning a home or sending your children to college is more satisfying than those new shoes you want to buy tonight.

Maintaining a budget means experimenting. Your monthly expenses are likely to be more flexible than your income. Perhaps you can earn extra income by taking a part-time job, asking for a raise or promotion, or looking for a higher paying job. Look for ways to cut your expenses. Trying cooking at home instead of eating out, carpool to work, or share your living expenses with a roommate. Visit free budget advice for more detials.

Be Careful

Working with your personal budget may not be easy, but you can avoid common pitfalls that can stop you from achieving your goals.

• Plan for emergencies: Because you may become sick or a natural disaster may strike your home, you should set aside money for such emergencies. A good rule of thumb is to keep three months worth of expenses as an emergency savings.

• Keep up with insurance premiums. This is one expense you cannot afford to cut out completely. Feel free to shop around for better rates, but do not cancel insurance policies or let your policy lapse to save money. If your car needs emergency repairs or you become sick, you will regret any lose of insurance.

• Keep your identity from thieves. Identity theft can ruin your credit and cost thousands of dollars and countless hours to repair. Avoiding identity theft can be as simple as reviewing your bank statements promptly and never giving a stranger your PIN number or social security number.