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Setting your personal budget requires a hands-on approach. The following guidelines will help you plan a working budget to embark on this journey.
1. Gather all your financial details. This would include all your bank account, credit card and insurance papers – anything related to your personal finances. These details will be needed to start your budget.
2. List all sources of income. This includes salary, rental income and regular dividends and interest.
3. Categorize your expenses starting with your commitments – list each item under headings such as:
- Home: mortgage or rent.
- Association and professional fees.
- Insurance: health, motor vehicle, home, contents and life
- education cost
- Day Care & Child Care
- Debt: Car loan, student loan, bank fees and interest
- Land tax or rates.
- Other payments required as a commitment: Motor Vehicle Licensing.
- Investing – Yes Commit to your future and pay yourself!
4. List Requirements – Again list each item under the following headings:
- Food, groceries, gas (petrol), home maintenance, security.
- Utilities: Gas, water, electricity, garbage disposal, phone costs
- School lunches, household supplies, car maintenance, internet service, dry cleaning, monthly parking.
5. Other expenses. Personal everyday expenses covered: lunch at work, snacks, coffee, drinks, newspapers, magazines, batteries, postage costs. Family and personal allowances: Parties, entertainment, weekend outings, movies, concerts, other entertainment and events, home improvement and decor, magazine and other subscriptions, eating out and fast food. Also includes: clothing, hobbies, personal entertainment, books, CDs, manicures, hair care, alterations, shoe repair, personal and family gifts, gardening, film processing, video rental, sports and gyms, charities, computers Software and other related items.
6. Once you have listed all your expenses, add up the total expenses and subtract them from your income. You will need to change everything monthly or weekly. This means that the bills paid once a year should be divided by 12 to get the monthly figure. Convert the quarterly payment to an annual figure and then convert it to monthly. It is important that you include bills that are paid other than monthly to ensure that money is available when the bill is due. Keep the money in an interest bearing account.
7. Do you need to change your budget? When you subtracted your expenses from your income, was there money left over or did you find that your expenses were more than your income? If your situation is the latter then you will need to do some improvisation. Commitments cannot change. As far as necessity goes, you may be able to cut back on food expenses and find cheaper providers of utilities or try to save costs by being mindful of turning off the lights. They are not needed and can be reduced or cut. Review your budget regularly to make sure it’s still working for you.
The time to start a personal budget is now and these guidelines are designed to ensure that your budget is truly a working budget – one that works for you!
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