Creating a personal budget is critical to your financial future because having a rough idea of what bills need to be paid and when, is simply not enough. Creating a personal budget is important because a clear plan allows you to evaluate your income and expenses to see if you’re spending more money than you’re making. Failing to create a budget that accounts for all your spending may cause you to live beyond your means and eventually end up in debt. Are you convinced that you need to be creating a personal budget and do you know how to go about it? Some people desire to but procrastinate.
Here are some common excuses for not budgeting-have you ever used one of them?
“I’ve tried creating a personal budget but I never seem to follow through.”
“I don’t plan on going into debt so I really don’t need to learn about creating a personal budget.”
“I don’t make a lot of money and don’t have many bills so I don’t really need to know anything about creating a personal budget. Besides, I don’t spend that much anyway.”
Let’s start with “I’ve tried creating a personal budget but… “. The issue here is discipline; one thing I’ve learned in life is the disciplined will rule the undisciplined. You have to discipline yourself to follow through. Is your financial state important to you? If so, begin by spending 5-10mins at the end of each day making note of money spent, where and comparing it to your budget. It is easier to remember and track this way. Without creating personal a budget, it’s very easy for money to slip through your hands unnoticed and unaccounted for. Creating a personal budget is vital to your present and future success.
For instance, if you’re currently working full-time for minimum wage in Ontario, that’s $10.20 X 40hrs/week = roughly $20,000/year. If you’ve been working for the last 5 years, you’ve made about $100,000. Where is all that money? Can you account for it? Not having a budget is a recipe for disaster.
As for the claim that “I don’t plan on going into debt anyway,” no one ever plans on going into debt, it just happens, trust me. Ever heard of the saying “when you fail to plan, you’re planning to fail”? Creating a personal budget allows you to see where you currently stand and to take stock of how much is needed to get by every year, month, week, etc., and then compare it to how much money you’re actually making. If there is a shortfall between your income and your expenses, it forces you to take a critical look at your expenses and look for where cutbacks can be made. Without creating a personal budget, it is easy to miss this discrepancy and easily reach out for credit cards to cover the shortfall.
And for the reasoning of, “I don’t make a lot of money/I don’t spend much anyway,” not having a lot of money or only having a few bills is not an excuse for failing to create a budget. Bills always start out as a “few” but if care is not taken, they mount up; just like small problems become big problems when they are ignored. The issue is not how much money you make, it’s how you manage what you do make. It is very naive to think that once you start making more money, you’ll start creating a personal budget and learn to save. It won’t happen. If you haven’t learned to manage small amounts of money, you won’t be able to manage large amounts of money. We are creatures of habit and no matter how old you are, you need to start developing what I call “good money habits.”. Whatever habits you’ve developed over the years have gotten you to where you are now; do you want to keep going in this direction? If not, you need to change your habits because if they could have gotten you more, you would already have more. The first step in changing those habits is creating a personal budget.
So let’s re-cap. To be financially secure and not end up knee-high in debt like the average consumer, you need to live within or better yet beneath your means. Exercise discipline, learn good money habits and get started by creating a personal budget.
Many people would like to be able to create a budget. But it can seem like one of the most difficult things on the planet to accomplish. By understanding how to create a budget, you’ll be more in control of your finances. Use these 3 steps below to make your own monthly budget planner.
1. Create a list of your monthly income.
Be sure to include all sources of regular income, including part-time jobs. Add up your numbers and write them down.
2. Determine monthly expenses.
Make sure to include food, gas, clothing, utilities, and housing costs. If you’re not sure how much these are, just save your bills and receipts for the next month and you’ll have a more accurate idea.
3. Figure out if your monthly income is enough for all of your outgoing expenses.
Are you making enough meet all of your monthly obligations? If not, then consider reducing expenses in certain areas. One of the biggest areas where people can save money is in entertainment and eating out.
Also, ask yourself if you’re really using all of those services that are part of your monthly bills. Do you really watch all of those T.V. channels? How many unread magazine subscriptions do you have around the house? You may be surprised to find out how much extra found money you can come up with.
After you figure out you income and expenses, then it will be easier to create a budget.
Start estimating how much your bills cost during the next month. If you’re not sure, save your bills and receipts for one month to get some solid numbers of how much your spending. Making a budget in an ongoing learning experience will take some time to perfect. Just stay with it for about 3 months and you’ll be in charge of your money. Isn’t that the way it should be?
When it comes to budget planning there are several important steps that you need to follow to ensure you create a budget and follow it. Believe it or not but budget planning really is the easy part. The hard part is following your budget! Fortunately, the following suggestions will help you out significantly not to mention there is budgeting planning software out there that will run all the numbers for you automatically if you aren’t so good with math or simply want to save some time! Consider the following tips and you will be able to create a budget in no time.
Create a List
The first thing you need to do is create a list. On one side you need to include all of your income. This includes money from jobs and any other sources. On the other side write down all of your expenses for the month. Things like rent or mortgage payments, groceries, gas, insurance, car payments, clothes, entertainment, tuition, and anything else that you spend each month should be written down. Even include things like your daily coffee or afternoon milkshake. Once you include all of this information you can start doing some figuring.
Need vs. Want
Now, you want to go over your list and consider what on there is a necessity and what is a desire. You must pay your mortgage to keep your house, you don’t have to buy a $3 coffee every day. Follow this example and you will see where you spend your money and how you can save it in the future. This will allow you to create a budget you can live on and eliminate the things you don’t need and still pay for the things you do.
Budgeting Software
Now, include all this information in some budgeting software so that you can figure out what percentage of your income will be spent, saved, invested, and the like. When you decide you want to save 20% of your income or some other similar amount then you can do it with the help of a little forecasting software.
Stick with it
Now, the most difficult part of all is to stick with the budget you create. If you can’t stick with it then there really is no reason to have it. A budget is a great way for you to pay all of your bills, save money, and even work on getting out of debt. It takes time and effort, but if you are willing you can follow a budget and achieve your goals.
One of the most basic and most important ways to build net worth, is to save more money each month. Increasing savings requires a budget.
A budget allows you to see where you are overspending and to take corrective action. The most important part of a budget is constant review and discipline!
Now it’s your turn to determine your budget. Having a written budget is very important as it prevents you from “cheating”. You can create a plain budget on a piece of paper, or you can create a spreadsheet to do all the calculation for you. In the resources below, a free budget spreadsheet is provided.
The basic budget should include a “Planned Budget” and “Actual Budget” (where you document what actually happened). As you consistently review your budget each month, you will discover ways to save even more money.
Here are some basic instructions for filling out a Budget Worksheet:
Fill out the first column on the spreadsheet labeled “Planned Budget”. This is your GOAL to achieve each month. This column will represent the amount of money you hope to spend in each of the given categories.
Fill out the “Actual Budget” as the month progresses. This will help you see where you are overspending.
Compare the Planned Budget to the Actual Budget at the end of each month. As you focus on saving money, you will surprised at the many different areas in which you can cut back your spending!
Also, note on the Budget Spreadsheet that some of your expenses are “Necessary” and others are “Discretionary”. Try to eliminate as many discretionary expenses FIRST, and then look to other categories to save even more.
You should continually assess where your budget is each month and you will notice your net worth increasing.
For a free budget calculator and a continuation of this article, see the resources below.
Business expenses are a fact of life. Before you start your business you need to take some time and create a budget that lists your main business expenses and what you estimate each will cost per year.
The best way to do this is to use a cash flow planner. It will take you through planning for your business expenses and the cash that will be leaving your business 13 weeks at a time, or one quarter at a time. Let’s look at some of the common business expenses in detail:
Salary – by six to nine months down the road, you should be pulling in enough income to take a draw. This is a significant business expense at the start, even if you’re only taking out $400-$500 a week.
Employee benefits – another huge area of business expense. Search around to find out what people are paying right now. If you are still employed, try to find out what the total monthly premiums are. Remember to account for the fact that you might not get a group discount rate.
IRA – this is a business expense that many people forget about. You will want to retire, so make this or some other retirement vehicle a priority now.
Payroll taxes – this is a business expense that you should talk to your accountant about. He or she will be able to assist you better than any general guidelines.
Training and certification – typically you should factor in about $1,000 a year for this.
Dues and subscriptions – expect this business expense to come in at a little over $300 a quarter or $1200 a year.
Products purchased for internal use – here we’re talking about spare PC systems and parts. You are wise to budget this business expense at between $3,000 and $4,000 per year. The key here is to only purchase items that will bring you immediate ROI. If it doesn’t tie directly to billable hours, then it is a business expense you can’t afford right now.
Telephone and ISP expenses – budget for about $110 a month for a business phone plus an inexpensive DSL account.
Marketing and promotion – this will be a large business expense. Plan for $5,000 to $6,000 a year.
Commercial insurance – budget for $2,200 per year.
Transportation – a fair estimate is $30 per week.
Professional services – typical yearly totals are around $2000.
Corporate income taxes – this is another business expense that you need to discuss with your accountant.
Loan payments – these will be specific to your situation but need to be included in the budget.
The Bottom Line on Business Expenses
Business expenses will happen on a daily basis. To plan effectively you should use a cash flow planner or spreadsheet to keep track of your budgeted business expenses on a regular basis. Some expenses can be budgeted for based on common experience. The others will need to be discussed with your accountant or banker. There are a lot of variables, but the common factor is the need to budget carefully for your business expenses.
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