6 Steps to Creating a Personal Budget
Posted in Money Matters
Budgeting is the most important first step to getting personal finances under control. People tend to be put off by the idea of a formal budget, it seems more work than it’s worth. However, there are some easy steps you can take to make it work for you.
These 6 steps will help build a personal budget that works for you:
- Collect: Gather up as much information as you have on your last 3 months of expenditures and income. Look for bank statements, receipts, bills, credit card statements, etc. Record what you bought, utilities you paid, fees associated with transactions, monthly bank charges, etc. Pull out your pay stubs and information on any other income you may have. Look for patterns. Do you spend the same amount monthly? Do you have some expenses that seem to be the same every month?
- Calculate: Now that you have the data together, break it down by categories: housing, utilities, food, transportation, recreation, etc. Average what you spend and what you earn per month. Compare income to expenses to see which is higher.
- Cull: If your expenses are higher than your income, look for the places you can cut spending. Can you reduce your electical bill by switching to CFL bulbs? Do you need to start packing a lunch to reduce restaurant visits? Look for expenses you can reduce or eliminate.
- Consider: Now you know what you have available to spend and pay bills, prioritize your personal debt. Review the amount you owe and the interest rates. List each debt starting with the highest balance first and highest interest rate next. Follow these steps for paying down your debt.
- Chart: Once you know what discretionary income is available, plan your financial future. Outline short-term and long-term financial goals and what steps you will take to reach the goals.
- Continue: Have patience and stay the course. Personal budgeting will not become a habit overnight. Track your progress, review it often, and make adjustments when necessary. It takes time to build a habit. Keep moving forward until personal budgeting becomes second nature.
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Thanks Ian. This post ist very helpfull.