Published on May 12th, 2013 | by Brook Taylor0
How to Create a Personal Budget the Easy Way
Did you run out of money again this month? The dog had to make do without dinner, huh?
Getting your personal finances in order, no matter what state they’re in, starts with preparing a personal budget.
Personal finance? Budgets? Cash management? I can hear the groans from here, but don’t worry, I’m not asking you to eat a bag of chalk! Making a budget can sound scary but there are a few simple steps you can take to make it more palatable.
1. Make the Time
Simply stop procrastinating! That’s the first step. Make a time when you and your partner, if applicable, are both available and sit down together with no other distractions.
2. Write Down all the Typical Monthly Outgoings – with Due Dates
Make a note of which payments are essential and which are non-essential. Don’t forget the daily incidental outgoings such as groceries and gas for the car.
3. Write Down Annual Outgoings – with Due Dates
Don’t forget the annual payments you have to make – like insurance or subscriptions. Make a note of which payments are essential and which are non-essential.
4. Write Down Monthly Incomings – with Payment Dates
Make a note of salaries, any rental income, known tax returns etc.
5. Be Honest!
Now’s the time to get all expenditure out on the table. Make sure you (and your partner) are realistic with estimates on how much you spend on incidentals like eating out, or buying your favorite magazines, for instance.
Feature image by Tax Credits
6. Create an Excel Spreadsheet of the Data
This should be as basic as possible. Normally you will list your bills in the first column on the left, then the total balance you owe (in the case of a mortgage for instance), the monthly payment amount, and the due date. That’s the four basic columns you need. Income will go at the bottom of the first column and be highlighted separately. Play around until you arrive at a system that’s clear for you – use online templates if need be.
7. Highlight Essentials and Non-Essentials
You can make the essentials bold and leave the non-essentials as normal text – or some other way to identify between them. Despite what you may think, the ten dollars per week spent on ice cream is a non-essential; and the electricity bill is probably an essential, especially if you want to keep reading our blog posts.
8. Cut Out the Fat
This process alone should immediately highlight some areas of your life where you can cut back, if you are struggling to meet your monthly commitments.
9. Identify where Debt can be Reduced
At the same time it’s critical to identify where interest payments are crippling you – often that’s with your credit card, which is high-interest, “bad” debt.
10. Work Out Ways to Pay Off the Bad Debt
This is a subject for another post, but you can use a range of credit card calculators, or even use your Excel spreadsheet formulas, to work out how you can start clearing your credit card debt quicker. If you can free up cash to make larger payments on your credit card each month you will reduce interest payments and begin to have more control over your finances.
It’s amazing how many of us don’t take the simple steps above to get our finances in order. Looking after your money is an important part of achieving a degree of independence and prevents you becoming trapped in the debt system.