As human beings, we have a lot of needs and wants. We cannot avoid our needs. But surely we can cut down on our wants. For those who are not aware, ‘needs’ are necessary for survival i.e. food, clothing, place to live. While, ‘wants’ are things we would like to have i.e. mobile phones, cars, etc. We have a long life to live and hence, we need to be able to maintain our lifestyle even when we will not be able to work as we do today, for instance at old age. So for that reason, we need to hit the brakes on our spending spree and make a personal budget. Budgeting does not necessarily mean to stop all spending, rather, it means to spend money wisely. It helps a person to avoid falling in a debt ridden situation and live a comfortable life throughout. The steps in this article will help you learn how to make a personal budget. Also you can download a personal budget worksheet to keep a track on your expenses by clicking on the cover image below.
The steps below will help you make a personal budget:-
Step 1: Make a note of your monthly income
First and foremost step in making a budget is to note your monthly income. If you are self employed, you must keep track of your daily income and the money that you accumulate at the end of the month. If you are employed, then you must note your salary and other incentives that you earned. This will help you be conscious while making any spending decision.
In the spreadsheet you downloaded, you can write your monthly income in the given cell. Before that, you can select your country from the drop down list and your currency will be set automatically. You can enter other income in the spreadsheet.
Step 2: Make a List of Expenses
In order to get a clearer picture of fixed commitments, periodic expenses, and any other type of expenditure done on a regular basis, it will be a wise move to maintain a notebook to write all these costs. Based on this data, make a list of expenses like Rent, EMIs, Groceries, Electricity Bill, Water Bill, etc.. There will be fixed costs and variable expenses every month. In the Personal budget spreadsheet, there is a list of expenses made for you. You can edit the items in the ‘Expenses head’ column. according to your convenience.
Step 3: Write Estimated Amount for each Expense
If you can maintain a notebook and jot down all expenses incurred in the past three months, you will get an idea about where your money goes. You can maintain bills of the past three months for this study. You can use this collected data in the Personal budget template and enter in the ‘Estimated amount’ column as shown in the image below.
Step 4: Enter Actual Amount incurred
Once you have got the data for estimated amount required for each of the expenses head, you can go ahead and write the actual expenses and compare the two. After you incur various expenses, you can enter the same in the ‘Actual Amount’ column in the excel worksheet. The total expenses will be updated automatically. The excel template will generate a chart of comparison between Estimated and Actual Amount incurred. Some other insightful data charts will be generated too.
Based on the data charts, you can make decisions as to where there needs a control of expenses. Also you can then allot more money towards investments for a better future. Although I always recommend to first keep money aside for investments, and then spend the money on everything else. That is required to ensure a good future. You can set aside money for retirement too.
Tips for a successful budget
1. Set Goals
Setting goals is a good habit while making a personal budget to curb expenses. You should write down both short term as well as long term goals. For example,if you want to save money for buying a car, then you need to set aside some amount every month for a particular period of time. This kind of incentive will help you save more each month. Set other goals which will help you accumulate money for future opportunities of investment where you can get good returns.
2. Make a roadmap
Before you start saving your hard earned money, you need a solid plan to do so. You cannot avoid your rent, your groceries, etc. But surely you can go for say go carpooling to office or say cut down on your mobile bill. Adjust your habits. If you are a junk foodie, avoid it. It is neither healthy nor it is easy on your pocket. It can be a struggle at first, but when you see those extra bucks that will be left in your kitty, you will be the most delightful person in the world. So sit down and make a plan how you will curb your spending. Find out inexpensive alternatives for your spending on essentials. Do not go for a brand.
3. See that all are on the same page
If you are a bachelor, it is easy to go on with your plan with no hesitation. But if you are a family man or a woman, it will be necessary to take all members of the family in confidence. It is good to explain to children the importance of saving money for their future. Involving children in the mission of budgeting is a healthy family exercise. Let children bring ideas to the table on how to save money. You can keep yourself motivated by displaying your mission on your wall. Each member of the family can be assigned some tasks to help in the mission. For each successful, keep a small prize. It will help you keep your motivation level high. Thus, make sure that every member of the family, young or old is on the same page when it comes to making a personal budget.
4. Do not Procrastinate
Once you have made a solid plan and your family is with you, you can jump in to action. Do not procrastinate. Start with easy things which you can do away with. Slowly go towards stopping bigger spending. It is easy to give up your mission to save money. But do not let that feeling come to you.
5. Budgeting means wise expenditure
Budgeting does not necessary mean restricted expenditure, it means wise expenditure. This will help secure your future and during difficult times. Learn to make little sacrifices for a better future. The most important thing is t0 learn how to make a personal budget in such a way that you do not take away the fun from your life. A good budget will keep proper balance and will keep your life happy even in your old age.
Also Read: How to Save Money?