Personal Finance: How To Make A Personal Budget

By MySpendingPlan.com Editorial Staff

Without a personal money management budget, or a spending plan as some people like to call it, it is very easy to spend more money than you make and end up buried in debt.  Many of you may find it difficult to stay within your means, and if you have to contend with a sudden layoff, an illness, perhaps a divorce, or take a pay cut, then you may just find it impossible to make ends meet.  So it is imperative that you have a good spending plan, whether you are a family of one or ten!

Creating a Family Budget:

1. Calculate your monthly income:

Make a note of all the income that you earn. Make sure to list your after tax and after deductions income.  If you do not have a fixed income, calculate the average that you earn each month from your previous years earnings.  If your spouse also works, list down their income as well (make use of our FREE budget worksheets).

2. List your monthly expenses:

After you have noted down your monthly income, you need to make a note of all the expenses that you incur each month.  Start with the major expenses such as rent or mortgage, car payments, insurance premiums, utilities, etc.  Now list those expenses that you usually pay cash for.  These include groceries, transportation, clothes, accessories, eating out, personal care, entertainment, education, books, etc.  After listing the categories, note down how much you spend on each category every month (utilize our FREE personal budget planner to help with this).

In addition to your living expenses, you should also set aside some money for health care (unexpected illnesses, etc.) and some for emergencies.

3. Put income against expenses:

Balance your total expenses against your total income.  If after budgeting for everything you still have money left over, great.  That money can be put aside as savings.  However, if your expenses exceed your income (which is the case with majority of Americans), you need to decide which expenses are essential and which can be cut down.  If after all the expense cuts, your expenses still exceed your income, you may have to look at cutting down your major expenses.  This can be done by refinancing your mortgage loan, giving up your car and using public transport, or opting for lower cost housing.  These sacrifices can be tough, but with some budget planning, let’s make sure you never reach that stage.  And if you do, think of it as an opportunity to regain your financial health and move forward positively.

4. Implement and review:

Once you have set up your family budget, you need to put it into action.  Stick to your budget and spend according to it.  After a couple of months, you have to sit down and review whether or not you are managing to stay within your budget.  If not, it may be time to alter your personal budget or make some tougher decisions.

You can use our software with free printable budget worksheets to help create your spending plan rather easily - you can even track bills due, savings goals and tasks.  Although budgeting does seem like a lot of work, once you have set up a proper family budget and manage to stick to it, you will see that it is quite easy to stay out of debt.  You may actually surprise yourself and manage to stash away some savings as well!