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How to Create a Personal Budget

How to Create a Personal Budget PhotoIf you want to save money, it is important to learn how to create a personal budget. Just saving without having a solid idea of how much you actually earn and spend within a given period is not the right way to do it. You have to follow the following guide to make sure that you are on the right track.

Write it down

This is perhaps the common mistake of people wanting to create a personal budget. They think that since there is only one source of regular income there is no more need to write the budget plan down. It pays to see everything in black and white and also makes sure that no item is forgotten.

Know how much you regularly earn

For salaried workers this is easy as the basis is only the monthly take home pay. The budget plan must be written on a monthly basis. This is because some months may require bigger spending just like in the case of paying for the children’s tuition fees.

Include in the list interest earnings

If you have savings that earn interest on a monthly basis, it must be included as part of income. All sources of income must be included to get a full view of where money is coming from.

List all necessary expenses

When it comes to necessary expenses, you have to list and write them all down. This includes food, rent, telephone bills, water, electricity, and all other expenses that are sure to come for the month.

Deduct necessary expenses from regular earnings

When both income and expenses have been determined, deduct the expenses from the monthly earnings to see if a balance is available. The balance serves as the savings for the month or can be made a part of the disposable income which you can use to spend on other things.

Adjust expenses if needed

When there is no balance left after deducting the expenses from the income for the month, there is a need to adjust expenses by lowering it or look for additional source of income to maintain the lifestyle. Most people are forced to scale their expenses like saving on electricity, gas, water, telephone bills, food, and other non-essentials just to have a positive balance in their monthly budget.

Financial freedom is the goal of many people. It is actually not impossible if you will only live within your means. Having a budget plan is the first step towards being free from money problems.

  • Dmitri

    I love the idea of personal finance apps for iPhone or Android :)