Create a Personal Budget with These 5 Simple Steps

No doubt, creating a own personal budget is definitely the best way to gain control over your finances and live a financial stress-free life.

1. Collect and put your financial information together. All information including every credit card statement, bank statement and your receipts especially documents related to your expenses for the last three months needs to be collected. With these information, you can categorize your expenses. You can track how much you spend on your home and expenses on car, food, entertainment. Currently, you are not able to track them. Just come up with expense categories and sub-categories for your budget. To make things simple, you can draft the categories and sub-categories which you think your expenses will fall into. Once you have go through your expenses, you can confirm the categories.

2. Create your own income statements or profit and loss sheets so that you can determine how much money you really have to budget with. You have to be consistent in using either you net or gross income as a form of calculation. If you choose to use your gross income, remember to include your taxes on your list of expenses.

3. Using the same documents you used to create your budget expense categories and sub-categories, now examine how much you spend each month on each. Remember to note down the figure. This will help you to determine  how much you will spend in the future. Your budget has reflect a realistic outlook of your spending habits, not a financial diet.

4. Develop a recording system for your budget. This could be a simple spreadsheet where your columns are a list of your categories, your weekly or monthly available spending amount, how much you actually spend and the difference between the two numbers.

5. When creating a budget, it is good to have a budget category devoted to savings goals. Spend at least 3 months to test your budget. Make sure you keep your budget handy so that you can track your income and expenses closely. Do a weekly or monthly assessment of your spending. You may need to re-evaluate your budget as you test it out. You budget is not set in stone and some of your expenses are variable, meaning you control how much you spend on them. For example, entertainment is variable and your mortgage is fixed.

A budget is not your financial diet. It is an instrument to help you to have a better control over your money. Thus, we must be knowledgeable and smart in spending our money.

If you want to learn more about bugeting, you will like to check out Money Sense Tips on Budgeting.