Personal Budget
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How to Create a Personal Budget: A Beginner’s Guide

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“A budget is telling your money where to go, instead of wondering where it went.” John Maxwell. If you keep on thinking, ‘where did my salary go?’ at the end of each month, you are in dire need of a personal budget. Personalized budgeting can provide an unambiguous picture of your earnings and expenditures. Creating a budget would be effective enough to save you money at the end of each month. Consequently, securing your financial stability and freedom. 

If you are in debt, checking your salary number is essential as it helps you be more focused on paying off bills rather than spending extravagantly. 

A-GUIDE-TO-BUDGETING

It is a relief to see your debt dropping each month or the saved money in your bank account (if you are not in debt). Creating a personal budget requires a proper process. So, keep moving forward and follow these 6 simple steps to create a personal budget you would not ever have to change:

what is a personal budget? 

A personal budget is creating a spending plan based on your income. These plans can be weekly, monthly, or yearly and are determined by how much money you make and how much money you spend.  Always set a budget at the beginning of the month.

Let’s get started on creating your perfect Personal budget.

Follow the following steps for creating a personalized budget that could save you several bucks at the end of each month:

Figure out your income After Tax Deduction

It would be best if you had a proper salary evaluation before creating a budget. So, you need to calculate the money you bring home. Exclude taxes. For accurate budgeting, refer to the most current paycheck to see what you have earned after a month of dedicated work. Your take-home pay determines your personal budget plan.

If you work at a company where they deduct an employee’s IRA contributions, include them in the earned salary.

On the other side, if you do not receive a steady pay-check due to your job’s nature, take the mean or average of your monthly earnings and come up with a moderate number to begin with.

Know Your Living Expenditures

By living expenditures, I mean the house rent, maintenance bills, utility bills, food, grocery, petrol, phone bills, and mortgage. So, do not add extra expenses, such as your monthly shopping haul. These are expenses that you cannot do without.

Calculate Your Leisure Expenses

Think of all the money you spend each month to have fun or to make yourself happy. Examples of such expenses are fine dining, fitness classes, gym, library fees, sports club fees, paid subscriptions, etc. These expenses are referred to as discretionary because you have the option to drop them or delay them if you are in a financial crisis.

This category makes you want to overspend. So, make sure to monitor or keep track of them.   You can use an app like Personal Capital, a free budget tracker that monitors my spending by category. That way, you know exactly how much you (over)spend on coffee and other leisure expenses.

Make Adjustments as You Go

If you are in a critical situation where you are spending more than your income, try to cut down some leisure expenses. Since these expenses are non-essential, you can shave a few dollars to have your income and spending columns equal.

Keep Your Financial Goals Firm

One important aspect of creating a personal budget is prioritizing your financial goals. The money you are left with after excluding taxes, discretionary expenditures, and living expenses are what you will use to execute your financial goals. Some of these goals are:

Repaying Debt

The worst thing about debt is that the more you delay it, the more interest will build upon it. Some of the debts, such as student loans, home loans, or high credit card loans, have a high-interest rate. So, repaying your debt should be the top priority by default.

Building Up an Emergency Fund

Is an Emergency Fund Necessary? My answer is Yes.  Emergencies do not knock on your doors before coming. So, try to set up an emergency fund. It’s not that difficult. More so, try saving a percentage of your income, such as 5 or 10 percent. It may take you longer, but it will accumulate. You must save enough to have 6-month living expenses in your bank account. An emergency fund does not have to be massive – but it certainly should cover unexpected expenses.

Contribute to Retirement Account

Start thinking about retirement plans early. The best retirement plan offers a favorable employer match (typically 3% to 5%) and huge tax benefits. Try to contribute to your retirement account as much as you can.

Invest for Future Financial Stability

If you do not spend extravagantly or do not have any debt to pay, invest your excess cash somewhere profitable. Investing in the stock market is risky, but worth it if you plan and calculate very well.

Start investing today with Acorns.

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Increase income with extra hours, new job, or side hustle

Most people struggle with budgeting because of limited income. If you have enough cash, budgeting, and sticking to your budget will be very easy. So, look for ways and opportunities to start a side hustle or get a new bob to increase your income. Once you’ve done what you can to lower your expenses and cut out unnecessary spending, it’s time to find ways to earn more money.

Here are great ways to earn more money:

  • Freelance writing:  There are hundreds of freelance writing jobs out there, and it is one way to make money this day. This work-from-home opportunity is legit, lucrative, and lets you work anywhere in the world. Start as a side hustle and move from there until you make enough.
  • Start a Blog: Another easy way to start a side hustle and make money by starting a blog. Blogging is about things you love and things you are an expert who can help people. More so, you can move from a side hustle to a full-time career with blogging.
  • Sell Etsy Printables: This side hustle is almost entirely passive, meaning you do the work in one sitting and then get paid for it for months and years to come. Look for the best-selling products and go for them.
  • Surveys: Filling out surveys to make money is an easy way to make money by simply providing your opinion to questions. Here are some survey companies: Swagbucks, MySoapBox, Opinion Outpost. This side hustle can be done in your spare time.
  • Facebook Ad Manager. Since the inception of Facebook, many people are making money out of it. You can become a Facebook Ad Manager and extra cash monthly.
  • Sell on eBay and Amazon: A lot of people make money selling things on eBay and Amazon. You can sell almost everything on these platforms ranging from books to clothes to electronics. All you need to do is look for the product and start selling.

Consider The 50/30/20 Budget Trick

This is an efficient trick to manage your monthly income sensibly. This is a trick (NOT a rule) for managing your income in a way that allows for both saving and spending.  Let’s say you’ve calculated your after-tax income as $5,000 per month. In this case, you’d have $2,500 for needs, $1,500 for wants, and $1,000 for savings and debt.

Here’s how it works:

  • 50% of your take-home salary should be spent entirely on your needs or daily living expenses.
  • 30% to wants that includes fun or entertainment, such as Netflix membership, gym fee, dinner dates and
  • 20% for your savings, which includes repaying debts, setting up an emergency fund, or investing.
The 50/30/20/Budget

NEEDS: 50% of Your Income

Needs refers to those things you cannot do without.  Always differentiate your needs from your wants. This can be very hard, but you must distinguish your wants from your needs in other to budget properly. This portion of your budget range from:

  • Living expenses
  • Groceries
  • Rent
  • Mortgage
  • Utilities
  • Transportation
  • Home and auto insurance

WANTS: 30% of Your Income

Wants are expenses that you choose to spend your money on but don’t need to live your life. If you want to save money more quickly, you’ll need to set aside some of your want’s money for extra savings.

This category includes expenses

  • Dining out
  • Alcohol
  • Cable TV
  • Internet
  • Shopping
  • Vacations,
  • Memberships
  • Subscriptions
  • Entertainment

SAVINGS: 20% of Your Income

Savings is what you would be keeping for your future and your financial goals. It’s also important for you to pay debts or set aside money for your debt payments. To achieve financial independence and minimize the chances of disaster, you need to get rid of consumer debt, save for retirement, and build your emergency fund. This should be allocated toward financial goals.

This category includes:

  • Emergency fund
  • Down payment on a home
  • Invest for retirement 
  • Student loan payment

Here’s a list of the most popular budgeting apps:

Here is a sample of a personal budget:

Income:

Day job (After Tax) – $4,000

Side-hustle income – $400

Expenses:

Rent: $1,150

Groceries: $300

Utilities: $200

Car Payment: $150

Fuel: $150

Debt repayment: $400

Savings: $600

Eating out: $75

Insurance: $250

Misc:

Charity: $50

Beauty/Barber/Hygiene: $40

= $3365

Final Thought

The beginning of your budgeting process can be very tough because you are not used to it, and everything is new. You will make some mistakes but don’t just stop there, keep trying until it becomes a habit.  

A budget permits you to spend money on things you enjoy and need instead of things you don’t need. Furthermore, it might not work well, but it’s okay, and you will be fine! When you have a plan for your money and know where every dollar is going, you aren’t waste it.

It would help if you never allowed your expenses to exceed your income. You can also adjust the rule for your needs and wants by changing the percentages to match your personal situation and financial goals.

Having a budget and not sticking to it is another big issue; take it a step further and check out the 6 Simple Ways To Stick To Your Budget Monthly

Do you have a budget? Let me know in the comment section!

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