How to Construct a Personal Monthly Budget
On the Road to Financial Freedom and Effective Financial Planning
Aug 29, 2009
For most people, the word budget conjures up nightmares of long sleepless nights filled with perplexing financial figures and statements, and the fear of finding out the exact state of financial health. Despite all this, creating a budget can be critical in allowing personal control over finances, and will show just how much income is available and what allowances can be made in terms of spending and saving.
The Benefits of Creating a Budget
Creating a budget is not as daunting as people might think. One important thing to remember is to be as detailed as possible; the more information that can be gathered on monthly income and expenses, the more accurate the prediction will be regarding personal financial status. Creating a budget should not be a once-off task; it is advisable to reassess a personal budget on a monthly basis in order to ascertain if the planning is on course.
According to Shweta Misra, in an article for Business Week on the 27th of August 2009 entitled, ‘How preparing a personal budget helps you save more,’ another reason to create a monthly budget can be summed up in one word: Investing. Finding the extra money to use in investing activities will depend on how well income is planned and the responsible monitoring of expenses; creating an avenue for the achievement of financial goals.
How to Create a Personal Budget
A personal budget can be created as follows:
Action 1
Calculate the amount of money coming in (income) and the amount going out (expenses). This will include collating every activity and source that provides a supply of income, and all expenses. The more detailed this list is, the more accurate the budget and financial plan will be. Make sure to include expenses that constantly change on a monthly basis (variable expenses), as these will be one of the main determinants for savings.
Action 2
Allocate a variable expense amount for unplanned events, such as entertainment or emergencies, and as monthly budgetary reviews are made adjust these expenses accordingly in order to portray a more accurate view of personal financial health.
Action 3
Determine personal financial health by adding up the monthly income and expenses. Having higher expenses will mean adjustments need to be made to curb spending; if income exceeds expenses, this additional income can be moved into other avenues to either decrease debt or be developed for further investment. It is important to ensure that spending does not exceed income, which will require a constant re-evaluation of all expenses.
Action 4
And most importantly, it is critical to create a foundation of consistently re-evaluating the personal budget on a monthly basis. This is crucial in order to determine whether the financial plan is still on the right path, and to continuously readjust expenses in order to bring them in line with the amount of income earned.
The Road to Financial Freedom
Financial planning will allow freedom from a life lived from salary to salary, and in the words of Manish Misra on an article in Personal Money on the 1st March 2009 entitled, ‘What does personal financial planning mean?’ the advantages are, ‘...effectiveness in obtaining, using and protecting your financial resources...increased control of your financial affairs...improved personal relationships...a sense of freedom from financial worries obtained by looking to the future.’
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