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Personal Budget Keys and Pitfalls

Figuring Out Your Finances

Jul 1, 2008

Personal Budgeting Works Best with Goals, runron

In uncertain times such as an economic recession, it is especially important to watch where the dollars are going in a personal budget.

With food prices rising an average of 74% over the past couple years and gas and transportation costs soaring, it is ideal to create a personal budget and make sure to stick to it.

The Ideal Personal Budget

Creating a budget can be as tricky as sticking to one, and much thought needs to be put into it. The hardest part is often facing existing spending habits, rather than defining new ones! Experts suggest gathering past receipts and pay stubs to get an accurate picture of income to expenses. Tracking and categorizing daily expenses for a month or two also creates a financial picture. The ideal breakdown of spending is:

Housing and Debt: 30%
Taxes: 25%
Insurance (Health, Car, Homeowners, etc): 4%
Savings/Investment: 15%
Living Expenses: 26%

Keys to Budget Success

The above breakdown is just a guideline and may need to be adjusted depending on financial goals. When creating a personal budget, remember these tips:

Include accurate income
Treat your savings account like you would a bill and make sure to always pay into it
Include non-monthly expenditures

Staying motivated and avoiding impulse buys are also critical in maintaining a personal budget.

Personal Budget Pitfalls

Avoid credit cards – pretending that credit cards exist outside a budget is a huge mistake that could end up costing a lot. If you’ve included a savings portion in your budget, then hopefully you can avoid having to use a credit card in an emergency, but this is not always possible. Just make sure to adjust your budget to include the monthly payments.
Lack of Adjustments – A big pitfall when budgeting is failing to account for budget changes. Each time you get a raise, or your financial goals change, sit back down with the calculator and re-configure your budget. This will save you the major headache in the long run.
Holidays – Many people forget to budget for the extra expenses surrounding the holidays. Be sure to include a portion of your budget dedicated to presents, time off, and other holiday expenditures.

Bottom Line

Keeping a goal in mind, whether it’s saving up for that new LCD Flatscreen Hi-Definition TV or simply trying to make ends meet, will be the biggest benefactor for budgeting success. If you slip away from the exact percentages of your budget, don’t fret. Just sit down and start anew.

The copyright of the article Personal Budget Keys and Pitfalls in Personal Budget Creation is owned by Stephanie Cox. Permission to republish Personal Budget Keys and Pitfalls in print or online must be granted by the author in writing.