Create a Personal Budget in 7 Easy Steps
By Brandy Serena
If your financial situation is out of control it may be time to create a personal budget. This could be the decision that gets your finances back on track because it takes back control of what your money is doing. You want your money to work for you not your creditors, which is exactly what it is doing if you are living paycheck to paycheck. Instead of paying interest to them why not make it yourself?
A personal budget will do many things for you. The most important thing it does is let you make informed decisions about how you spend your money. It will show you exactly what you income and expenses are and lets you make adjustments to ensure a sound financial future.
Other then taking the time to get started, creating a budget is relatively easy. You will need a notebook or legal pad and a pencil. Draw a line down the middle of your paper, label one side income and the other expenses, and you are ready to go.
1. Gather up your last three months worth of pay stubs and any other records that show income. Total them up and divide by three to get your average monthly income. That number gets written down at the top of the income column.
2. Now for the fun part. Gather up all your bills, credit card statements, and checkbook register and start itemizing a months worth of expenses in the expense column. For those bills that fluctuate each month you can use the three month method as used in step one to get a solid average. Add all those expenses up and write the total down at the bottom.
3. This is the step most people fear. Compare your income to your expenses and see which one is more. If you expenses are higher then your income then you have a problem that needs to be fixed. Chances are you are making up this shortfall with credit of some sort. You can’t build a sound financial plan if you are in debt, it’s that simple.
4. Now that you have everything written down it’s time to look it over carefully. Target unnecessary expenses and start cutting them. A budget gives you the power to free up money that can be used for more important tasks.
5. You can also use your newly created budget to start prioritizing your debts and which need to be paid off first. This gives you a game plan to get out of debt while actually being able to see positive results, which is a major part of good money management.
6. As you get better at budgeting you can start to refine and track your long term financial plans. You can manage savings accounts, investments, emergency funds, and retirement accounts using your personal budget.
7. Patience is required when first starting out because it won’t work perfectly those first few times. Most people need 3 or so months of budgeting practice before they start to really get the hang of it.
Your financial future is in your hands. Nobody can build it for you. If you create a personal budget you will take the first step to attaining your financial goals.
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