The Art of Personal Budgeting


Joanna Marie, Negosentro |  Despite many people being responsible for aspects of budgeting in their jobs, or being business owners responsible for the budget of an entire business, it’s surprising how few people have a personal budget for their own expenditure. If you have more coming in than you have going out, you may not feel the need to monitor your spending, or you may have so many debts, loans and credit cards that it seems too complicated to get to grips with, and it feels easier to bury your head in the sand. In either case, there are good reasons for getting on top of managing your finances, and it’s something that doesn’t need to be complex or time-consuming.

Why it’s important

If you are in debt, whatever your position is the best thing to do is find a way out of it, and this is never going to happen if you continue to ignore the situation. By analyzing your expenditure, you can find out where your money is going and be able to see where you can cut down in some areas and work on reducing your debt. If you don’t have money worries, having a budget can still be useful for helping you to save for a big expense like a luxury vacation, a new car, or remodeling work on your home. For those who lay somewhere between these two poles, a budget can make the difference between being able to afford nights out and comfortable living, and slipping into debt.

How to approach making a personal budget

The basics of a personal budget are simple; list all your expenses for the year on a spreadsheet, broken down by month; then list your income each month, and you can calculate the difference between the two. You can then see how much money you’ll have left at the end of the year if you carry on spending and earning at the same levels. When it comes to populating the expenses, it’s best to look at what you spent in the previous twelve months in each category. It will give you a more realistic idea of your outgoings, which is important because it’s easy to underestimate how much you spend on certain things. Having accurate figures is the only way that your budget will work effectively, so don’t guess, and be meticulous in calculating your expenditure. Put in everything, not just utilities and other mandatory costs. Include what you spend on all the miscellaneous bits and pieces like going to the coffee shop, picking up a magazine, and buying gifts. When it comes to your travel expenses, calculate your mileage including all the journeys you make and not just going to work and back. Check the price of fuel and the mileage figures for your car, and don’t forget to include allowances for taxes and maintenance costs. You should have a little set aside for contingencies, so that if a major expense crops up that you couldn’t predict you’ll have it covered. If you’re able to, it’s wise to pay into a savings account too.

Using your budget

Once you have all your figures entered, you’ll be able to see what your financial prospects are for the next twelve months – or as far into the future as you want to go. If you have a shortfall or aren’t in credit as much as you expected, don’t make the mistake of adjusting your figures to make them fit and bring your balance to the level you’re happy with. This is not an exercise in justification, it’s a tool to help you identify where your money is going, so fiddling with the figures is not going to help you get to grips with your expenditure. Instead, look at the figures for each category and see if there is a way to reduce them. Look at all your regular costs like power, cellphone, broadband, water, etc. and find out if you could save money by switching provider or adjusting your plan. If you’re paying rent or have a mortgage, use an online financial planning tool like a piti calculator to see if you would be better off with a different mortgage. Then see what you’re spending on variable costs like groceries and leisure activities. Could you economize a little by shopping at a different store or choosing cheaper brands? It’s easy to spend large amounts on things like snacks, bottled water, and take-out coffee without even realizing it. At the time it seems like a few dollars here and there, but if you look at your budget, you’ll see that you’re spending fifty dollars a month or more. Once you’ve been through all your expenses, you can then do a check each month to see how accurate your figures are, adjust them accordingly, and monitor your predicted financial position for the months to come.

You’re in control

The object of operating a budget like this is not to scrimp and save and turn into a miser who never spends any money on themselves. Rather it’s for you to be sure that your living costs are prioritized, enabling you to spend the remainder of your income however you wish. If you’re spending fifty dollars or more every month on coffee, but it’s one of the treats you most enjoy, then as long as you have the funds there’s no reason not to continue. On the other hand, if you would like to save up for a trip to Hawaii and buying coffee has become a habit rather than something you treasure, you can adjust how much you’re spending on the coffee and put what you save towards your vacation. It’s all about being in control and making the choices that will enable you to live the life you want to.

It can take a bit of effort to set your budget up in the first place, but there are plenty of tools available online that can help you with the process, and even if you simply set up a spreadsheet, it shouldn’t take more than a few hours to enter all the data. Once it’s set up, it’s a few minutes once or twice a month, and the time you invest in your budget initially is sure to reap the rewards in the future.