Making A Personal Budget Made Easy!
MAKING A PERSONAL BUDGET
Making a personal budget can be easy and rewarding. The excitement of starting your journey to financial freedom enabling you to get off the working treadmill is extremely liberating!
Step 1 – What’s Your Reason Why?
What are you saving for? Do you want to be debt free, start an investment empire or travel the world? Once you know what it is place a picture in your bathroom, bedroom, phone or anywhere you can think of that will keep you motivated to stick to your budget.
Step 2 – Create A Visualization Board
Use a piece of cardboard and place a picture of yourself in the middle and point pictures of everything you want to have or do pointed towards you. If you’re planning to buy a house place a picture of the style of house you would like along with the number of bedrooms etc on your board. This then draws these into your life and keeps you highly motivated as you view it at least daily. You can take a picture of it and look at it throughout the day discreetly. This is a great tool to keep you on track with your budget.
Step 3 – 5 Year Planning
Start at the end first – where do you want to be in five years. Then simply work your way from the first year to the fifth. Include investments, holidays, lifestyle anything that needs to be planned for.
Step 4 – What’s Your Net Income?
It’s essential to know how much money you have coming in. That is what you receive in your hand after all deductions are taken out. If your income is irregular than average out the last 6 to 12 months of your income and use that figure.
Step 5 – Track Your Spending
Knowing your spending habits will help you allocate funds. For one month note every cent you spend and what it was on. Go through your bills for the last 12 months and work out a monthly figure for each bill.
Step 6 – Your Expenses
Break up your expenses into fixed and variable. Fixed expenses are payments that remain the same each month ie mortgage etc. Variable expenses are expenses that change every month ie groceries.
Step 7 – Know Your Debts
List and add all your debts from the highest to lowest interest rate including credit card, mortgage etc. Pay off the highest interest rate debt first then move onto the next one.
Step 8 – What’s Your Net Worth?
Add all your capital (equity in home, cash etc) then deduct the total of your debts.
Step 9 – Pay Yourself First
Budget to put aside at least 10% of your net monthly income and deposit this into a savings account that cannot be accessed easily. This is not to be touched and is a start to your investing empire.
Step 10 – Create Your Budget
You can use paper or a software program. Enter in all your expenses for a month broken into categories ie food, mortgage, rainy day fund, 10% pay yourself etc. To reduce debt quickly increase repayment of highest interest rate payment – keep in mind 5 year plan and when you want to have it paid off.
Step 11 – What’s Your Bottom Line?
Add all your expenses then subtract them from your monthly income. If your figure is negative then it’s time to trim the fat and reassess your spending. Look at all your variable expenses ie food etc and start reducing figures until it balances out.
Step 12 – Additional Income
Is there a hobby or interest which would increase your income? Could you rent a car space or bedroom?
Step 13 – Stay Focused
Print your budget and keep it somewhere handy for quick access. Before spending on clothing, food etc check your and see what funds are available. Mobile apps can also keep your spending on track.
Step 14 – Review
Review your budget after three and six months. This allows you to make adjustments where needed. Make changes whenever there is an increase in your income or your expenses have changed.
Step 15 – Financial Windfall
If you receive a financial windfall such as tax refund, bonus or inheritance make an additional payment into your investment fund so as to make achieving your financial dreams quicker. Remember to reinvest any interest, dividend or excess rent received – it’s amazing how this creates a snow ball situation heading you towards finance freedom sooner.
Step 16 – Celebrate!
Once you have reached a financial goal ie paid off your credit card CELEBRATE! This is a milestone in achieving financial success so treat yourself! You’ll then be energized to hit your next financial goal! Don’t forget to cross off the goal you’ve reached and place a date next to it – it’s uplifting to look back at your past achievements to keep you inspired.
Remember when making a personal budget to make it enjoyable. Make adjustments as you go and to keep it fun – the more enjoyable – the more likely you’ll stick to it.
Author: Diane Klem-Goode
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Copyright 2016 Making A Personal Budget