The Young Money Club

Whether you’re planning ahead, saving for a big purchase, or just want to see where your money is going, a personal budget is a great place to start.

In simple terms, a personal budget gives you the information needed to plan ahead for future spending/saving based on your own financial history.

Creating a personal budget doesn’t necessarily mean you have to suddenly become an extreme couponer or drastically change your lifestyle in any way. It simply helps you account for your money and make adjustments based on any goals you might have.

That’s the beauty of budgeting, it is completely customizable and up to you to decide how you want to use the information it gives you.

While there are many different ways to design and organize a personal budget, the primary steps are basically universal. In this article I will be giving you all the information you need to start taking control of your finances through budgeting.

Step 1: The Gathering Phase

The first thing you need to do before anything else, is to collect every financial document you can get your hands on. This means bank statements, receipts, utility bills, and anything else with information on your income or expenses.

It’s important to get as much data as possible so that later on when you calculate your monthly averages you can get the most accurate numbers as possible.

Step 2: Identify and List Income

The next step is to look through all your financial documents and identify your sources of income. If a regular paycheck is your only source of income then that makes things simple, just list what you take home after-tax.

All other outside sources of income should be listed as well. If you receive irregular income from any particular source, try to calculate a monthly average so you can get a rough estimate.

Step 3: Identify and Categorize Expenses

After sorting through bills, receipts, etc. and identifying all your expenses, separate them into two categories, fixed and variable.

Fixed expenses are those that stay pretty much the same each month and are necessary to maintain your lifestyle. These would include rent, car payments, internet, student loans, credit card payments, and anything else you can count on paying a consistent amount for.

Variable expenses are those that may change month-to-month based on your personal habits. These include items like gas for your car, certain utilities, eating out, alcohol, and entertainment. This category is where you should direct most of your efforts if you’re looking to save money.

Step 4: Total Your Monthly Income and Expenses

This step is pretty self explanatory, simply add up all your monthly income and expenses then compare the two totals. If your income total is larger than your expenses then you are doing great. You can make changes if you want to save even more money or just maintain knowing that you’ll have money left over each month.

If your expense total is greater than your income then it’s probably time to make some changes. You may have some savings or other method of staying out of debt but long term this is unsustainable. You should look towards your expense column to reduce what you are spending and give yourself a financial safety net.

Step 5: Go Crazy

Now that you have all your totals you can proceed however you see fit. You can now track where all your money is coming from and going to. You should update your personal budget monthly with any changes that may occur. Maybe you change internet providers or buy a new phone, these are all things that need to be added to keep your budget as accurate as possible.

A personal budget is simply an informational tool. It won’t actually DO anything, that part is up to you. It’s your job to use your budget to align your expenses with your financial goals. Sure you could also work on increasing your income but expenses tend to be a much easier and quick fix to financial problems.

If you’re looking for even more ways to save money you can check out How to Save Money: 10 Simple Tips