The basics of personal budgeting
admin on Дек 10th 2007
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We are always worried about our finances; we always wonder whether we are in credit or in debit. But funnily enough we all know how much money we made last month, yet we never know how much money we have spent or how much we have got left. According to Finance web sites, most of us spend 10% more per month than we actually make. Nowadays it has become much easier to spend our money because of the so-called cashless society. We use debit cards, credit cards, and wire transfers instead of cash.
My simple tips on how to draw up a budget should help you to get a rough idea on how to manage your finances and how to keep track of your spending.
First of all it is important to distinguish the difference between things that we actually need (rent, food, etc) and want (another pair of shoes, a computer game). Your budget would help you to prioritise your needs.
I would advise you to get a notebook and keep it on hand to track your expenses for at least 3 months. Three months budgeting trial period works better simply because 1 month does not normally reflect the real state of your finances. You might have some extra spending that you do not normally have. Three months can help you to notice a pattern in your spending, and track a difference in expenditure between these months.
Create your budget writing all the income down (yours, your partner’s, guaranteed overtime, extra earnings, etc). Expenses should include living expenses, such as rent/mortgage and bill payments, food, transportation, health care, and clothing, as well as planned holidays. It’s recommended to leave at least 5% of your income for an emergency contingency fund. It’s wise to have one as it reduces the stress level if an emergency situation emerges.
After you have listed all major monthly incomes and spending, write down all the things that you have recently purchased, including dinners out. It’s vital to list all the tiny purchases, using your debit or credit cards, cheques, direct debits or cash. Also it’s highly recommended to keep all the payment bills/cheques/receipts for at least a month and then recalculate everything once again to make sure that everything is correct. That will also help to make sure you have not been charged any extra for your purchases.
You can also create your own budget with a help of a financial planner, computer data or online programmes (most of them are chargeable). Home Bookkeeping LITE is a good alternative as it’s free and password protected. Whichever method you choose make sure it suits your lifestyle. The easier you make the task of budgeting, the greater your chances of success.
Successful budgeting will help you to realise whether you spend your money wisely or simply fritter it away. It will help you to concentrate on things you need the most. Successful budgeting helps to see the money you can save and spend on something pleasant and rewarding.
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