Better money habits can be helpful in leading a better life. Create realistic goals, have measurable metrics of your success. Create short term and long term goals and invest in different baskets. Even if Plan A fails, have 3-4 plans planned ahead. So that you don’t get dejected and move forward with a positive mind. Keep your financial issues at bay by planning the finances ahead. Use online tools, excel sheets, finance apps to track down the expenses. When it’s on a paper, it’s not forgotten.
In this blog, we discuss how to create a personal budget in detail –
- Lay the Foundation. Start with the basics. Note down the priorities, incomes, deductions etc,. For a certain future timeline. I will walk you step-by-step through them in a way that is easy to understand.
- Budgeting Principles
- Calculate your net income
- Track your spending
- Set realistic goals
- Make a plan
- Adjust your spending to stay on budget
- Review your budget regularly
Living a satisfactory life goes in parallel with healthy financial habits. Sanction yourself of secured money, the key to success and step out of financial stress with these personal budgeting tips. Read in between the lines of this blog and get a step-by-step guide to personal budget.
Laying the Foundation:
- Information collection: gather your income documents (payslips, bank statements) and totle expenses (bills, receipts) for a certain period of time(Weekly,monthly).Have a clear picture of how much money comes in and what goes out. Financial picture is really important for creating a personal budget.
- Note down the Priorities: Identify financial goals? Future needs. If you dream of a luxurious or comfortable life? Understand how much is needed to get to that point. Discipline in finances makes it possible.
| Age Group | Do they plan personal budgeting | Considerations |
| 20s | Studies suggest lower budgeting rates compared to older generations. | Increased financial responsibilities with age might lead to more budgeting. Younger adults may be targeted by financial literacy resources, but haven’t yet formed strong financial habits. |
| 30s | better in developed countries | Presumably, budgeting becomes more common as financial obligations like mortgages or families arise. |
| 40s & 50s | Most budgeting is done at this age | These age groups might be more likely to budget due to long-term financial goals like retirement planning. |
Read Also: Managing Financial Reprise: An Comprehensive Guide to Understanding Financial Reprise
Building Your Personal Budget:
1. Calculate Your Net Income:
- Total your income sources: salary, side business, investments, family income, etc.
- Calculate only the take-home salary after all deductions.
2. Keep Track of Your Spending/Total Family Spend:
Take a thorough look into your expenses (weekly or monthly). Use the latest apps, notebooks, or any other metric of your choice to measure your spending. Track into 4 categories like basic needs (food, gas, clothing, accommodation, transportation) and non-basic needs (entertainment, luxurious cars, movies), etc.
Below are the samples for basic needs categorised for personal budgeting.
| Category | Description |
| Essentials | Expenses necessary for your basic well-being and survival. These categories typically have fixed costs or have minimal flexibility in spending. |
| Housing | Rent, mortgage payment, property taxes, and homeowner’s insurance (if applicable) |
| Food | Groceries, essential dietary needs |
| Utilities | Electricity, water, gas, trash collection, and the internet (considered essential for many in today’s world) |
| Transportation | Car payment (if necessary for work/daily life), gas, public transportation costs, car insurance |
| Healthcare | Minimum health insurance coverage, regular medications |
| Minimum Debt Payments | Minimum payments on student loans, car loans, or other unavoidable debts |
| Clothing | Basic clothing to maintain a presentable appearance for work and daily life (replacements as needed) |
| Personal Hygiene | Toiletries, basic grooming products |
| Non-Essentials | Expenses that contribute to your quality of life but aren’t strictly necessary for survival. These categories often have more flexibility for reduction or elimination. |
| Entertainment | Dining out, subscriptions (streaming services, magazines), movies, concerts, hobbies (within reason) |
| Personal Development | Educational courses outside of work requirements, gym memberships (optional depending on health goals) |
| Savings & Investments | Retirement savings, emergency fund contributions, future goals (vacation, down payment) |
| Gifts & Donations | Gifts for birthdays/holidays, charitable donations |
3. Set Realistic Goals:
You can’t just cook money. So be realistic and create a plan. Don’t cut every non-necessary part just like that overnight. Just plan and start with small sacrifices for a bigger goal. Not down the small achievement for future praise and self motivation. Don’t lose motivation, just keep working on it. Don’t give up easily.
4. Create a Budget Plan:
There are 100’s of budgeting plans in the market. Follow some YouTubers/Influencers for ideas. Choose a budgeting method that suits you. For example, one personal budgeting method is 50/30/20 rule
- 50% Needs: This covers essential expenses for survival, like housing, food, utilities, transportation, and minimum debt payments.
- 30% Wants: This allows for discretionary spending on entertainment, dining out, hobbies, subscriptions, and personal development.
- 20% Savings: This is crucial for building an emergency fund, saving for long-term goals (retirement, down payment), and investing.
Allocate specific amounts for each spending category based on your income and priorities.
5. Adjust Your Spending:
Now that you’ve completed the picture you can cut down on a few non-essentials. Get an idea of where you can reduce the spending. Better to explore cheaper options. Sometimes you may not be able to control your urges, but keep on reminding yourself of the higher goal.
6. Review Regularly:
Don’t go back to the app daily. Just review it on a weekly or monthly or quarterly basis. Or else you won’t be able to enjoy the perks of living in the present. Sometimes let loose but remember, yur personal budget gives you financial stability in the long run. Monitor if you’ve deviated from your goals or everything is running smoothly. If some new income source or spending is scheduled for the near future, you can add that as well and plan ahead.
At the End,
AI and machine learning have made a lot of advancements in personal budgeting. Utilise technology and help yourself. Numerous budgeting apps and online tools can simplify tracking income and expenses, automate bill payments, and set financial goals. Keep tracking, monitoring, and reaching your goals safely. Remember, financial stability, even after retirement, is the goal.