Managing your Finances through Personal Budgeting | Preparing a Spending Plan

Managing your finances through personal budgeting is one of the effective ways of achieving your financial goals and dealing with most of your money problems.

Do you sometimes wonder where your whole income has disappeared to even before mid-month? Or some days you leave for work in the morning with some cash and in the evening you are scratching your head wondering what actually happened. Why? Your wallet or purse is empty. You have no clue as to where your money has disappeared to. You just don't want to admit you squandered it.

Likewise, do you get frustrated by your inability to achieve your financial goals because you can't find money to get to it? No matter your good intentions to set aside some money every month towards savings, you always find yourself with nothing. Probably your expenses are higher than your income. Or do you want me to say probably your income is smaller than your expenses? Whichever suits you? All you need to do is start using a budget (spending plan) and find ways to make more money.

The main purpose of preparing a spending plan is to help you:

  • Live within income bracket.
  • Stay out or get out of debt.
  • Spend money wisely.
  • Reach set financial goals.
  • Prepare for financial emergencies.
  • Develop wise financial management habits.

How to Prepare a Personal Budget

A personal budget means matching the income one gets with the expenses, in order to reach the financial goals set in advance. Preparing a budget is not that difficult, but still it could become a hassle. Try to make it as simple and as easy as possible, and you will find the personal budget a great tool for keeping your finances under control.

Step 1: List and Total your Monthly Net Income

Total up every net income you receive in a month. The income should include all of the resources, such as monthly salary, earnings from interest, earnings from rent etc'. Bonuses, gifts, or unexpected income should not be considered until the money is actually received. It's better to have money left over than be caught not being able to pay your bills because you factored in money that you weren't sure you'll receive.

Step 2: List and Total your Current Monthly Personal Expenses

The expenses should include all spending - purchases, monthly bills, insurance and savings etc' List all your monthly expenses as they are now. Include also weekly, quarterly, semi-annually and annually expenses. Do not forget discretionary expenses such as Books, Magazines, Entertainment, Impulse purchases, Snacks, Dining, Vacation and Travel and Membership fees.

Step 3: Subtract your Current Expenses from your Current Income

Take the total current expenses and subtract the sum from the total current net income. If, on paper, you have money left over but in reality you are living close to the edge or falling behind, then you have not accounted for everything or some of your figures are wrong. Examine your budget for inaccuracies and make corrections.

Step 4: Identify Where to Make Changes in your Budget

Once you have an accurate idea of where all of your money is currently going it is time to make changes for the future especially if there is more going out than is coming in. Your options include increasing your income, decreasing your expenses, or a combination of the two.

As you prepare and make the changes in your budget, do not forget to include money for creating an emergency fund, paying for personal loans and credit card debts, insurance premiums and retirement. After you are through matching your income and expenses, monitor your progress every month.

Tools to Use

The basic method of preparing a personal budget is simply using pen, paper and a calculator. On one side you list your spending, on the other your income and then compare.

Or, you can use:

1. Monthly Budget Worksheet. (zip file)

This worksheet is a combination of both the personal budget and the cash flow statement.

NOTE: The cashflow statement shows the actual amount spent and the personal budget shows the money budgeted for that spending. Therefore the worksheet has four columns, a column for the budget items, the budgeted amount, the actual amount spent and the variance i.e. the difference between the budgeted amount and the actual amount spent.

2. Money Management/ Personal Budgeting Software.

If you are not good with learning computer programs, I suggest you stick to the pen and paper or use these financial planning spreadsheets.

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