A Personal Finance Guide

10 Steps to Creating an Effective Personal Budget

Budgeting is important to your family’s financial health. Those with strong budgets tend to have their lives in much better order financially. Slowly, no matter what kind of income you have, you’ll see your net worth increase as you stick to your plan.

But what if your plan is weak?

Following is 10 steps to help improve your budget:

1. Use Microsoft Excel- Don’t waste your money on expensive budgeting programs. You can have a budget that is just as effective using some type of spreadsheet (Excel or Google Spreadsheets work fine). Simply learning a few formulas online, you can create a fully-customizable budget that adds, subtracts, multiplies, and divides any figures you need.

2. Determine Your Net Income- Doing a budget off a gross income makes it more difficult to compute. Taxes will be taken out of your check each time and that money may never be realized until you get your tax return back for the year. Be sure to calculate off a net figure; in other words, how much do you bring home monthly/weekly AFTER tax? You’ll have a better grip on what money you actually have to work with each month this way.

3. Determine Your Fixed Costs- What sort of expenses can you expect each month that don’t change? These are fixed costs, and you should have a category for them so you can see what are solidified expenses that can’t be avoided. Typically, your fixed cost line doesn’t have any wiggle-room. It could be a car payment, home mortgage, or insurance expense; these don’t change month to month.

4. Know Your Variable Costs- A variable cost is one that tends to do just that- vary. This could be your grocery bill, entertainment fund, misc. fund, gift fund, etc… From month to month, these tend to be a bit more flexible; if you know you’re going to be tight for money one month, look to you list of variable costs to cut where you can.

5. Every Dollar Needs a Spot- Make sure that every dollar has a place to go. There shouldn’t be any money at the end of the month that doesn’t have a job. Categorize where all of your money will go. If you fail to do this, you’ll end up spending what extra money could be saved!

6. Set Goals- If you have no end goal, you’ll fail with a budget! Is there a new home you’d like to get your hands on in the next 2 or 3 years? Maybe it’s the car you’ve been dreaming about since you were young. Whatever the case may be, have a goal and let that be your motivation to stick to that budget. If not, you will fail!

7. Save Your Receipts- If you don’t save every receipt, you’ll find that remembering all of your expenses will be tough! After making a purchase, make sure that you not only get a receipt but have a ready spot to put it. That way, at the end of the night when you’re updating your budget, you won’t let any expense fall through the cracks.

8. Update Your Budget Daily- This one is a must! Make sure you don’t wait until the end of the month to track all of your money’s goings and comings. You’ll find that your results will be inaccurate; and if that’s the case, what’s the point of your budget?!

9. Evaluate Each Month- If you’ll take a good solid 30 minutes at the end of the month to go over what happened with your money, you’ll have the statistics to help you see strengths and weaknesses; those numbers promote change. Otherwise, you might find that you’ve spent a lot and you know you need to change, but you won’t be able to identify those areas that need it most.

10. Have A Leisure Fund; Have Some Fun- You’re budget should create a little room to have a little fun! Budgets tend to have a bad reputation because they are often too restrictive. Allow you and your spouse to have a little fun with that hard earned money! Lay aside x-amount of dollars for a “leisure fund” each month to help keep your sanity. After all, you have to have a little fun with your money, right?!

Trever Shipp, the author, works as an online business consultant, student, husband, and business owner. Follow his personal finance blog and see how he and his family take finances by the horns and steer them to success.