Personal budgeting is an important money management tool that will help you get your household finances in order. A well drafted personal budget shows you how much money you need to make ends meet as well as how much you can afford to spend on entertainment and save for the future. The primary goal of a personal budget is not only to determine how much you put aside for savings, but to determine where your household money is coming from and where it is being spent. Once you learn how to track your money, you will know a close estimate of expected earnings and a spending pattern.


Analyze Expenses


The most important part of developing a personal budget is to make an honest and comprehensive list of all of your expenses. When making an expenses list, it is vital that you include everything, including the cup of coffee you stop for each morning. If you have expenses that only occur occasionally, however, it is often a large expense and must be included in the expenses. For example if you own an investment property that is rented out and although there isn’t a monthly expense associated with the property, but once or twice each year the tenants call about a water leak or other damages, use the highest amount you have spent on an emergency that occurred on the property. Expenses must include all of the standard monthly payments, such as the mortgage payment, utilities, car payment, insurance, gas, groceries, entertainment, daycare, credit cards and etc.


Prioritize Expenses


Once you have created a complete list of all expenses, the next step is to prioritize your expenses and categorized them by when payment is due. Create a category for each: unexpected expenses, annual, semi-annual, quarterly, monthly expenses, weekly and daily. Unexpected expenses may include things such as vehicle repairs, medical bills and home repairs. Annual expenses typically include homeowner’s association fees, property taxes, license renewals and home insurance. Monthly expenses usually include mortgage or rent payment, credit cards, child support, utilities, car loan and car insurance. Weekly expense should include child care, transportation, groceries/toiletries and savings. Daily expenses include impulse purchases such as a candy bar when stopping for gas, snacks, eating out, magazines and morning cups of coffee.


Calculating the Budget


Calculate your monthly take home pay, for example if you are paid weekly, multiple the amount times 52 and divide by 12. Figure all of your expenses as monthly payments, for example, if you have annual payments divide the amount by 12 to determine how much you will need to put aside each month for each annual expense. Do this for all of your expenses and if the payments are not due add the amount to the savings funds. Always budget for saving, whether it be for an annual expense or for an emergency, when you have money in the savings, it is earning interest.


Adjusting Expenses


Once you have created your personal budget, it is not uncommon for people to realize that their expenses are more than their income. It is important to take care of your top priorities first and then make payments to the rest of your expenses. If you find that you do not have enough money to pay the priority expenses, you will need to make adjustments on lower priority expenses. For example, by cutting out the morning cup of coffee, on the average you will save about $2 each day, times 30 days each month is a total of $60 you will be saving, which can be used to pay a credit card payment or buy groceries for a week.


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Personal Budgeting