How To Create a Personal Budget

Creating a personal budget is an effective way to take control of your finances. Not only does it help you set limits on how much money you should spend on different categories, but it also gives you the freedom to spend your hard-earned cash in a way that furthers your personal and financial goals. Here are some tips for setting up your budget for the first time.

1. Calculate Your Income

The first step you should take is to figure out how much recurring revenue, or money regularly coming in, you have. You can choose to calculate this annually or monthly, but either way, this will be the basis for your budget. Make sure you take into account any income streams you have in addition to your paychecks, such as income from a side business, child support or social security. You should also estimate how much you'll need to pay in taxes on each revenue stream unless these are already being withheld by the company you work for. If your income fluctuates from month to month, you'll need to take that into account as well.

2. Add Up Your Expenses

Once you know how much money you're getting each month, you'll need to determine what you need to spend it on. Start by calculating your fixed costs that are about the same amount each month such as rent, wifi and gym memberships. Then look at your variable costs. These are the expenses such as birthday presents, eating out and groceries that will vary throughout the year. If you can, look at your purchases in each category from the last couple of months to calculate how much you'll need to allocate from your budget each month. You should also calculate annual expenses such as car registration fees and consider dividing them into your budget over 12 months so that you aren't scrambling when they're due. This stage of creating a budget is also a good opportunity to see if what you're spending is a reasonable amount for your income and then make adjustments if it isn't.

3. Decide What You Want To Save

It's a good idea to set aside a percentage of each paycheck to have in case of an emergency, but you also might want to save for other goals such as a house, car or vacation. Calculate how much you want to save for these goals each month, and then work it into your budget. This might require you to lower the amount you are allocating to a different category, such as eating out or clothes, so think through what your priorities are. Cutting out a new outfit or a few cups of coffee every month can go a long way toward your savings goals. You might also consider setting additional money aside for car repairs and routine doctor's visits if you want to plan ahead and not be surprised by those bills.

4. Keep Track of Your Budget

A budget isn't a system that you can just set up and leave. You should not only continue to track your expenses but also revisit your budget regularly to make sure it still makes sense for your needs. You might even want to adjust it for each month, based around holidays and other events you have going on. Remember that your budget is a tool to help you manage your money, not a law you'll be punished for breaking, so you should feel free to change it to fit your needs. When it comes to actually sticking to your budget, there are a few budgeting apps that can help you track your expenses and see where you're at with your goals.

Creating a budget can take a lot of work up front, but the organization and peace of mind is worth it. Just follow these steps and don't be afraid to go back and readjust it as you need to.