Making a commitment to adjust on expenses is the most important aspect in saving. By tracking down our expenditures, we will be able to decide and adjust.
Creating a personal budget is a great way to find out where our money comes from. More importantly, it shows where it goes and how much is left. Read on below to find out how a simple personal budget is made.
1. Know your monthly income
It is very important to recognize where your money comes from. It is even more important to know how much it is. Your day to day expenditure depends on this entirely.
Your monthly income is the summation of all sources of money:
- If you’re employed, record your net salary.
- If you own a business, write down this month’s total income. From there, subtract operation prices and other deductions. (definition of a company’s net income)
- Financial support from family
Aside from knowing your monthly income, it would also be wise to be aware of how much you have in the bank. All info about your earnings and expenditures are essential. This will provide you a monthly average of things.
2. Identify your monthly expenses
Listing down monthly expenses should be interesting, don’t you think?
Here’s what you do. Refer to last month’s expenditures. List down things which required paying.
Your list should include everything, like:
- Dining out
- Starbucks coffee twice a week
- Fare or car payments
- Movies, DVDs, Watching live games
This process will give you an estimate of how much you’ll be spending this month.
3. Subtract monthly expenses from monthly income
Did you compute the difference between your income and expenses? How much are you left with?
Are your expenses close to the amount of your income? Are your expenses more than your monthly income? If they are… then you my friend have over spent!
Making a personal budget is like an eye opener. More than that, it will be a guide to keep us financially comfortable. So read on.
4. Create a list of need based expenses
Needs of course are things you definitely can’t do without. They require paying and should take top priority. What things did you enumerate on your “need based expenses”?
Most people would say that these expenses are based on fixed expenses. These are expenditures that are necessary in your way of living and are constant monthly. Examples are:
- Rent or mortgage
- Car payments
- Phone and internet service
5. Create a list of variable expenses
Variable expenses are those whose costs change from time to time. Their costs can be influenced by seasons and by how much you use them.
Enumerating these expenses is an important step for it’s here where cutting off usually happens. Examples are:
- Electric bill
6. Cross out items you don’t really need
Now that you’ve created your fixed and variable lists, it’s time to cut out on unnecessary items. Remember, it’s your objective to save a portion of your monthly income. Sacrificing now can greatly affect your finances for the better.
Let’s take a look at our sample variable list. We can adjust our expenses by crossing out:
- Groceries – expensive brands of food, beer, cigarettes, junk food
- Recreation – going to movies often, dinging out at restaurants, Starbucks coffee
- Electricity – plugged TV set all day, Air conditioning is on when no one is home