Steps to Set Up a Personal Budget

The main problem with people in this day and age is that they have very little idea where their money goes each month. It is not that they are being wasteful but rather they are simply passing out the money and not looking back. Now this kind of wistful behavior towards finances may work for some, most people like to know where the money they have worked hard for is going. For that you need to set up a personal budget.

A personal budget is the best method for keeping track of where the money is going and how much has to go there. So as you can see, a personal budget is nothing more than a straight reporting list of expenses and income that ends in the left over dollar figure. However, there is a process or steps that one must take to create a proper personal budget.

1. Choose your method

This is the digital age and many people have decided to use the many software programs that are available for their budgets. There is nothing wrong with that but it must be stressed that making a back up copy as well as a paper copy is so important. The last thing you want is too lose all the information because your computer fails.

There is nothing wrong with using the old pencil and paper method either. Some people are just happier with something they can see on paper. There are many forms on the market that allow for this to take place. Visit your local office supply store and you will find a book that is the personal budget for an entire year, very similar to a ledger for accounting.

With the software programs there is some valuable features that you may be interested in. For one the program will guide you through the entire process using a wizard program. Then the program will also do all the figuring for you to make certain that there are no math errors to worry about. If you have one of the higher end programs it may also suggest areas you can improve your bottom line.

2. Figure your income

For most people this is one of the easiest steps when doing the budget. All you need to do is figure up how much money you have coming in each month and gather the total. There are some areas where you should be careful in this step though.

For one you should only figure in the amount of money that is normal. If you have an hourly job then you should figure the amount for a regular month without overtime. If you add overtime to the amount it could cause problems should the overtime cease down the road.

You can always adjust this total if you get a raise or something of the like. Everything else, including overtime and bonus should be figured as extra income only.

3. Figure your expenses

This is an area that is two part. The first is the fixed expenses which are those that do not change from month to month. They most often include the mortgage or rent, auto loans, other loans and insurance.

The other is the variable expenses. These include utilities, credit cards, medical and food. These will change from month to month and can only be averaged.

You may also want to include what is commonly referred to as discretionary expenses, which can include entertainment, pocket money and so on. These are expenses that are not vital to your survival but they are present none the less.

4. Compare the two

At this point you should compare your expenses to your income. The number you have left is the wiggle room each month. That money can be set aside to be saved or simply enjoyed, the choice is yours.

5. Set a goal

Now that you have compared the two and determined how much you have left you will need to decide if you are happy with the figure. If not then you need to set a goal, which is the dollar figure, that will make you happy with the outcome.

6. Improvement

If you are not happy with the bottom line and have set a goal it is time to make some changes. Improving your left over money each month can be a very simple matter but it may also include some sacrifices.

7. Maintain the course

If you have set a goal and then reached it you are now in a position to manage the money to make sure you stay that way. An annual review of your budget will give you the information you need to make sure that you are still on course with your goal.