Monday, September 2, 2019

Personal Monthly Budget in Five Steps

“The plans of the diligent lead to profit as surely as haste leads to poverty” - Proverbs 21:5

To direct your spending and financial future a budget is a critical component.  It takes the initiative to start, the hardest step.  Once you start, a key to growing in personal budgeting is understanding that it won't be perfect, it gives you a guideline.  Unplanned events enter into the picture, it's inevitable.  A key is knowing where funds are flowing enabling you to adjust with shifting spending and growing an emergency fund for the unplanned necessities.  A monthly budget will show you how much money expect to bring in against all of your expenditures from required expenses (i.e. Housing, Food, Utilities, Transportation).

To start a monthly budget, the following are five steps:

1.  Gather Information - To start a budget its important to realize having as much information as possible on income and spending.  The end result of a budget is to show where your money coming from and where's it going each month.  Items useful in determining this is bank and financial statements, utility bills, and other information that will enable you to write down the amount expected.  Averaging income and spending may be an accurate method to start.

2.  Record Income - Record all of your sources of income.  Include paycheck from an employer, self-employment, commissions, and other sources that provide money.  If income is purely commission and flows unevenly, an average would be a starting point.

3.  List Expenses - List out all your expenses and separate them between reoccurring (fixed that stay the same) and expenses that can vary from month to month (variable).     

4.  Total Monthly Income and Expenses - Now that you have your income and expenses you can add them up.  Add all your income for the month and subtract all of your expenses for the month.  If your income is higher than expenses, review emergency fund and investing goals.  Continue to build.  If your expenses are higher than income, review the variable and non-essential expenses.  The non-essential items should be easier to reduce.  As yourself do I/We need this or can it be deferred.

5.  Adjust Budget - You have set a budget, now live it.  As you learn grow into a budget, it will need to be adjusted.  This is okay and expected.  The more you budget, the better you will get at it.  After 3-4 months you will start to have a good idea of expectation and feel more autonomy.

The monthly personal budget will bring you more personal freedom as you will be directing where your money goes opposed to having money control you.  This is counter to initial thoughts of budget - a budget sounds controlling.  It's not, it liberates and puts you in charge of money.