If you need to borrow money to keep up with monthly bills despite earning a regular income, then you need a personal budget. Drawing up a realistic budget helps you plan and develop good spending habits.
Now, the big question is, "how do you create a personal budget?"
This can be challenging at first. There’s a great deal of information online, including the 50-30-20 rule, personal budget templates, and budgeting tools. In this article, we'll share practical budgeting tips to help you create and stick with your monthly budget.
What Is a Personal Budget?
A personal budget is a well-laid out plan showing how you intend to spend money over a period of time. This allows you to manage your money more efficiently, prevent overspending, and avoid impulse buying.
Without drawing up a personal budget, it is nearly impossible to track your household's finances. You won’t know how money moves out of your bank account and what it is used for. This can lead to you squandering money on irrelevant purchases and running out of cash when you least expect it.
By taking budgeting seriously, you become confident about your spending habits, allowing you to save more and plan wisely for your family's future.
Benefits of Making a Personal Budget
Budgeting your income gives you better control over your finances. You'll know exactly how much of your income goes to different living expenses, which helps you plan better. In this section, we'll look at the five benefits of making a personal budget.
A Personal Budget Helps You Save Money and Prepare for Emergencies
Having a budget prepares you for unexpected life events. If your child takes in suddenly or your roof starts leaking without warning, you should be able to handle these issues without applying for a short-term loan.
As you plan to allocate money to different expenses, you should also set some money aside in your emergency fund; this will help you handle unforeseen circumstances.
A Personal Budget Helps You Make Sure You Don’t Overspend
How many times have you walked into the store to pick up an item, only to end up purchasing things you don’t need? If you want to avoid impulse buying and overspending, you should commit to a personal budget, as it gives you a sense of purpose and intent.
A Budget Gives You Control Over Your Money
Without a smart budget, it feels like your money has control over you. However, once you get the hang of it, you will take charge of your resources and improve your personal finance.
You can decide what to spend money on, and how often you want to indulge in activities like shopping and eating out. The best part is a budget teaches you to live within your means.
A Budget Can Help You Avoid Debt
Ideally, you don’t want to be in a situation where you constantly need to borrow money to service existing debts or expenses; however, sometimes, it is unavoidable.
Borrowing from online loan companies can quickly lead to outstanding debt if done poorly. As you draw up your budget, you will have a better idea as to when you need to apply for a loan and the amount of money you can confidently repay.
A Budget Keeps You Focused On Your Goals
Having a budget can help you achieve your financial goals quickly. You can avoid unnecessary expenses and channel your resources to rewarding ventures that contribute to your money goals.
How to Create a Personal Budget in 5 Simple Steps
How do you write a personal budget? When creating your personal budget, you should include your savings plan, fixed and variable expenses, and your net income.
Here is a step-by-step guide to help you create a personal budget:
Determine Your Total Income for the Month
Before you start allocating money to different expenses, you need to know how much income you earn in a month. If you only work a nine to five job, you can determine your total monthly income from your paycheck.
If you run a business on the side or have multiple jobs, add up all the money you generate to know your final take-home pay.
List All Your Estimated Expenses for the Month
The next step to take is listing your fixed monthly expenses like rent, utility bills, car payments, student loans, and credit card debt repayments. You should also include any variable expenses like grocery shopping, utility bills, internet subscriptions, etc. You can write them down on a piece of paper, bullet journal, or in your budget spreadsheet.
Create Your Savings Goals
Now that you have a clear idea of your income and expenses, it's time to create your savings goals and start building your savings account. Typically, it would help if you categorized them into short-term, medium, and long-term goals.
For example, your short-term goal could be saving up for a new car or gym membership, while your long-term goal is saving for your child's education or building your retirement account. Mapping out your goals helps you to prioritize expenses and to know what to invest in.
Track Your Spending and Compare It to Your Written Plan
As you spend money on different items, be sure to check them off your list. This helps you know how you have disbursed income over a particular period and keep track of your financial goals and spending plans.
Make Adjustments as Needed
A budget serves as some sort of roadmap for your expenses, but it isn't set in stone. Don't be afraid to make adjustments when you have to. For example, if you see that you allocated too much money for a particular activity, you should cut back on it. If you have some extra money, you can add a movie night to your to-do list for the month.
Having a personal budget is one of the essential steps to financial freedom. Budgeting teaches you money management, how to plan for the future, and invest in worthwhile causes that improve your quality of life.
Learning how to make a personal budget is just one piece of the puzzle. You need to know how to stick with your plan and control your expenses. This takes a lot of discipline, and you might even fail on the first try. However, with consistency, you should get the hang of it in no time.
Even after budgeting, if you do find yourself in a pinch money-wise, reach out to iCASH and get a quick loan today!