How To Make A Budget

Although a lot of people don’t like them, budgets are absolutely essential when it comes to successfully managing your personal finances.

This is why businesses, schools and governments all have budgets, as without a budget they would not be able to keep track of where their money was going or coming from.

So if you want to get a grip on your personal finances then this article is going to be of interest to you, because we are going to be talking about budgets!

What Is A Budget?

A budget is a way of keeping track of how much money you earn, and how much of that you are planning to spend. A budget will usually cover a one year period, broken down into monthly intervals.

Having a budget is crucial to successfully managing your personal finances, because it means you will always know how much money you have coming in and how much of that you can spend.

Why People Don’t Like Budgets

If you stick to your budget, you should always have enough money to buy the things you have budgeted for without worrying about getting yourself into debt.

However this is also one of the reasons why budgets tend to have such a bad reputation with the general public.

Working within a budget means that sometimes you may not be able to get something you really want, because your budget does not allow for it.

As a result, many people are put off by budgets because they feel it will restrain or limit their lives in some way.

This can be quite hard for some people, especially if they own a credit card and are constantly exposed to adverts which tell them to buy this product or that product.

The natural reaction for such people would be to buy whatever they felt like buying right now, and then worry about paying it off later even if that means they will get themselves into debt.

This is something you can’t do when you are working within a budget, because you are forced to pay attention to your income and expenses.

Once you become aware of your finances you will always know how much money you have available to spend, and so will be much more careful on what you choose to spend that money on.

Does Everyone Need A Budget?

If you are serious about managing your personal finances and want to avoid getting yourself into debt, spending too much and saving too little, then there is absolutely no question that you need a budget.

It may take you awhile to get a budget that is just right for you, but once you get used to keeping track of all your incomes and expenses it will become second nature and you will find it very easy.

In these articles you will learn the basics of how to create a budget, so let’s start by looking at what you should put into your budget.

What Should You Put In Your Budget?

The simplest way to begin a budget is to keep track of all the things you spend your money on. To make things easier, group these items in categories such as food, transportation, utility bills etc…

These expenses should include everything no matter how much it costs. The idea is to get a feel over time for trends in your expenses, so that if you find you are spending too much money in one category you can then take action to reverse those trends.

Below are some categories you could use to get you started. Each category can be further subdivided to give you a more detailed picture of exactly what you spend your money on within those categories (a few sub category suggestions have been given next to the main category).

• Housing (utilities, rent, furniture)

• Transportation (petrol, public transportation)

• Taxes (work, house)

• Debt (loans, credit cards)

• Entertainment (movies, video games, music, going out)

• Personal (food, clothes, health)

• Insurance (home, car)

Unexpected Costs

Although the majority of your budget will include commonly reoccurring costs (routine expenses), such as rent or food bills, your budget must also take into account one off costs (non routine expenses) such as gifts you buy for other people at Christmas or for birthdays.

These can be very easy to overlook because they only occur once a year, so if you are not prepared for them they could very easily cause you to break your budget.

Other non routine costs to factor into your budget could include things such as maintenance costs for your car should it break down, or medical costs should you unexpectedly become sick.

Again, make sure you have budgeted money for such expenses, otherwise they could completely destroy your budget.

If you are unsure as to how much money you should budget for non routine expenses, you can take a look at all your non routine expenses that occurred in the past year.

If you have been keeping a budget for awhile, then you will know exactly how much this will be. If you are new to keeping a budget, then estimate this cost as best you can.

Whatever amount you come to, divide it by 12 and you will have budgeted your money for non routine expenses each month.

This is one of the advantages of keeping a budget for a long period of time, as you will be able to learn from your financial history how you can minimise your expenses and hopefully maximise your income.

Routine Expenses

Routine expenses will make up the bulk of your budget, and are what you will be able to tweak to reduce your overall expenses.

Below is a list of some of the main routine expenses you can expect.

Housing

The largest expense associated with housing is paying the rent or the mortgage.

However don’t forget about your other expenses such as utility bills, and also any money you spend on furnishing or decorating your home.

Debt

Debt includes all the money you owe such as credit card bills, student loans and car loans.

In addition to this, you must also include any personal loans you have received from friends or family.

Insurance

Any insurance you have taken out such as car, home or health insurance can be added to your routine expense category.

Taxes

Your main taxes are likely to be those related to your property (if you own it) and/or those which are deducted from your pay check.

Transportation

If you own a car your main expense will be fuel related, although you may have other smaller costs such as those from toll roads and products to clean your car. 

If you do not drive a car but use public transportation regularly, then calculate how much you spend each week or month on using those services.

Entertainment

For most people this category will be quite a large expense, as it includes all the money you spend on entertaining yourself.

Examples of things you could include in this category are holidays, eating out, movies, alcohol, music, hobbies, clubs, books or anything else that you do for fun.

Personal

This category includes things such as food, clothes, shoes, jewellery, gym membership, hair cuts, make up, toiletries or any other items or services which you use on a regular basis.

Children

If you have children this category will include all the money you spend on them.

Other

Anything else that does not fit into your routine expense category can be included here, for example, giving money away to charity.

It’s Your Budget

All of these categories are given as a guideline only, and you should use or make up the categories which best apply to you.

The idea is to get a detailed list of all your non routine and routine expenses, so that you will be able to better keep track of how you spend your money and then adjust your spending if necessary.

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