“Why should I have a personal budget?” Many people want freedom and do not enjoy having a budget. They feel like having a budget constrains their lifestyle where you cannot freely spend money. Many American households spend more than what they make because they do not have a budget or they may be using the budget incorrectly. Budget is important because it is a plan that shows you how you will spend your hard earned dollar. Check out well known companies. They all have a budget on how they plan to spend their money. Budget helps these companies to steer in the right direction. Likewise, budget can do same for us.
One question you need to ask yourself before creating a budget is “Where does all my money go?” Asking this question is an important step towards creating your personal budget because everyone has fixed and variable expenses. To start your own budget, you must know and document them. For example,
Possible Fixed Expenses:
- Do you have a monthly mortgage payment or monthly rent?
- What are all expenses related to car including car payments?
- Do you pay electric bill, water bill, internet connection, telephone, cell phone, cable, etc.?
- Do you have insurance payments such as auto, home, life, etc.?
Possible Variable Expenses:
- Birthday gifts and parties
- Beauty salons and Hair cuts
- Entertainments including movies
- Fitness membership
- Dining out
Example of Budget:
Once you have listed all your expenses, you need to take a look at you income. What is your monthly income? You want your monthly income to be greater than what you are planning to spend. If you are spending more than what you earn, then you may need to change your spending habits (See article…). You can also try to increase your income or decrease your spending. If you decide to increase your income, then you can look for a higher paying job, a second job, or maybe find a roommate to share your expenses. If you decide to decrease your expenses instead of trying to increase your income, you can limit purchases, remove unnecessary expenses (see possible variable expenses). It would be easier to cut variable expenses then fixed expenses. You can easily save $60 a month just by not drinking coffee every day.
Another action you should consider is the emergency fund. You never know when you will be needing extra money so it would be wise to have this fund for yourself. Basically, you need to save certain amount of money per month. Recommendation for this amount would be three month of your total expenses. You would need to add to this fund until your goal is reached. Until then, you would need to make room in your budget.
As an example, below is my personal budget that I am following every month. My total budget is approximately $4400 per month. My monthly income around $4800. I also put aside $400 to my children’s 529 plan for education, which is not enough in my opinion but it’s a good start…
Monthly Expenses Cost:
Most people dislike budget but it can only help us financially. I highly recommend creating a budget for you and your family if you currently do not have one. Please feel free to leave a comment on your personal experiences with your budget. What are benefits and disadvantages to having a budget from your experiences?