A personal financial budget is a money allocation plan which is part of your financial plan enabling you to outline your financial goals. Establishing a personal financial budget is not difficult and has tremendous payoffs. You can better establish and regulate your financial resources, set and achieve your financial objectives, and make advance decisions as to how you want your finances best to function for you.
The main idea in creating a personal financial budget is to put aside a certain amount of money for expected as well as unexpected costs, based on previous expenses and bills, as well as define savings amounts in its optimal state. It therefore enables you to position yourself to build wealth in the long-term. In order to create a useful personal financial budget as part personal financial planning you must do the following:
Step 1. Determine how to allocate your compensation by first identifying your spending habits. Define fixed expenses (e.g., home, auto, utilities, insurances, etc.) thoroughly for a month and write everything down and add it all up. Even if your utilities fluctuate a little you can estimate the cost after an average month. Through proper determination of your “spending patterns”, you can immediately identify solutions for creating an effective personal financial budget for your needs.
For instance, when you have a steady monthly net income (after tax take home pay) of $5,000, you should subtract all of your identified monthly expenses from that income – making a list of the regular monthly amounts. Spreadsheets are often useful for keeping track of this information. Many people often create an excel spreadsheet budget to track expenses. There can be benefits to creating multiple year personal financial budget plans.
Step 2. Next, assess other bills, like those that may occur periodically during the year. These can be estimated and then subtracted from the amount of your income. You have one of two ways of doing this. The first way is to compute the total for a year, divide the total by 12, and subtract that monthly amount by putting the money into savings to build until you need it. The second way is if you have enough surplus you can just budget the full annual, semiannual, or other bill in full or in some other payment arrangement.
Step 3. The balance that remained after fixed costs can now be budgeted across miscellaneous household expenses and savings. Budgeting for savings is often overlooked and therefore often will not get done. A short-term 2-5 year savings goal needs a minimum 2-year personal financial budget plan so you can see where you are going. A short-term impulse buying view is often what prevents people from accumulating savings and building wealth.
Step 4. To best determine how to ensure you contribute to savings, you can do this one of two ways. You could use dollar amounts for a group call miscellaneous like gas, clothing, entertainment and groceries. Some people promote using proportions or percentages. But think about it, if your income increases, does that mean your miscellaneous expenses should or should your savings increase instead? So, using dollar amounts instead of percentages could be advantageous to your savings goal.
Step 5. Ideally you have a minimum of 3 cash or banking accounts. These expenses should be allocated across 2 checking accounts – the first for paying bills and for transferring money to at least a second checking account and one savings account ( if you do not have direct deposit across all of these accounts). The second checking account would be for your household, miscellaneous, spending money and not the recurring bills. Then a third short-term savings/emergency account (later adding longer-term savings accounts of course) but these are beginning steps that many people never put into practice.
These are ways to establish a basic financial plan and to prevent usage of non-allocated money for miscellaneous or impulse expenses. These are beginning steps that many people never put into practice that are beneficial and can be built upon, for long-term financial planning.
Writing a budget is easy, but sometimes sticking to it can be a little harder. It’s definitely possible to stay on your budget though. If you’re having trouble balancing your budget and spending less than you make, use these few easy steps to stay on track.
Look over your budget
One of the main mistakes that people make in budgeting is never looking over their budgets to see where cut backs can be made over time. As you live your life, you should spend time looking over your budget line by line each month to see where you can cut back on your spending. When you set up your budget, you need to split it into essentials and non-essentials. You can easily use an Excel spreadsheet to total up both columns.
Cut back on the non-essentials
If your budget is simply not working because you’re spending more than you earn, you should look at cutting back on non-essential spending. Depending on what you tend to spend on, you may be able to cut back on eating out, gym subscriptions, magazines, and clothes you don’t actually need.
Since these things aren’t essential – they don’t involve lighting, heat, food, and a roof over your head – you can definitely live without them. It might be tough at first to cut back on these things, but it will help balance your budget.
Trying to completely cut out all your non-essential spending will result in a lifestyle you can’t sustain. You’ll just get fed up with budgeting and end up making more mistakes in the end. Instead, you need to find a balance between spending a little extra and spending too much. Here are a few ideas to help you balance your budget:
Look carefully at the money you spend on food, especially when you’re buying it in a rush. Work lunches and evening takeaways can really add up quickly. Get your hair cut less often. Adding just a couple of weeks between cuts can save you a ton of money each year. If you really want to save, just grow your hair long. Set a limit on the number of times you go out each month, and choose to go someplace cheaper if you can. Cut out your gym subscription and run in your local park or buy some free weights for your home. Limit how many new pieces of clothing you buy each month. Look at ways to save on your digital subscriptions. You may be able to downgrade your subscriptions or use Freeview instead. Keep close track of how much you give to charities.
Once you’ve made some of these changes, see how much they will change each month’s budget. If they don’t make enough of an impact, you can work your budget a bit more. Don’t take it too far, though. Be sure that you leave yourself some wriggle room unless you have lots of debt to pay.
Balance the essentials
You have to pay the mortgage or rent and all your utilities each month, of course, but you can cut back a bit on these payments, too. Perhaps those initial ‘deals’ that tempted you in have ended and now you’re paying higher rates. Look over all your bills each month carefully to be sure that you’re getting a good deal on your essentials. You can balance out these essentials by using some of these ideas:
Rent or mortgage
You can actually save a ton of money on your mortgage payments just by getting the best deal on your mortgage rate. Instead of sticking with the standard variable rate, which can be quite high, shop around for better rates and you will save.
You can check out mortgage rates at most price comparison websites. They take your information and give you the best mortgage rates for your circumstances. You could also talk to an independent mortgage advisor, but be sure that you know about their fees first.
Electric and gas
There are tons of different suppliers on the energy market right now, and you can change the amount you pay by choosing the right one. It’s definitely worth checking out different companies to see how you can save, especially if they offer discounts for switching to them. Again, check out the price comparison websites to see how much you can save on your energy bills.
Water
One of the best ways to save money on water is to get a water meter in your home. This will make you more aware of how much water you’re using, so it’ll help you save money and make you more environmentally friendly.
Insurance
Not shopping around between insurance companies is one way people end up paying way too much. Once a year or so, shop around for good deals on insurance payments. Look at ways you can save in these areas:
Life insurance Critical illness insurance Car insurance Pet insurance Travel insurance
Balancing your budget can be a little complex, and it can take some time. Cutting down your non-essential and essential spending will take a bit of effort as you carefully review what you’re spending in different areas. Take a couple of months before you set your budget in stone, and you could make a big difference. You should review your budget every few months and also whenever your mortgage deal comes up.
It can take some work to stay on top of all your spending and to adjust your budget, but you could save hundreds or thousands of pounds a year.
Many of us have negative connotations associated to the word budget. We feel it is restricting, not allowing us the freedom to spend our hard earned money the way we choose. We view budget as something which needs to be done by those who are struggling financially. Budgeting, however, is a fundamental concept which must be adhered to if financial success is to be achieved. Having a budget is a common characteristic among those who have earned their financial success. The lack of a budget is a common theme, typically, among those who are struggling financially. Budgeting isn’t punishment for not being wealthy. A budget is a means to determine where your money is going, something we all need to be able to do. Creating a budget is a way to determine whether you are spending more than you make. At the heart of financial success is spending less than you make. You simply can’t spend more than you make, at least not for long. So, what are the basics? The two fundamental questions to answer when creating a budget are; “What’s going out?” and “What’s coming in?”
The place to start creating a budget is figuring out where your money is going right now. There are a number of ways this can be done. You have to discover what works for you. I have tried different approaches to tracking expenses, computer software, spreadsheets, notepad, and check register. I have found a simple excel spreadsheet works best for me. Easily customizable, spreadsheets do the calculations I need and I can input the information in a manner that best suits my needs. You can start inputting entries from bank statements, credit card statements or from where ever you can obtain the information for the budget. Track you spending for about a month. Adding up the amounts will give you a good idea about your spending habits. A few guidelines in setting up your spreadsheet are listed below:
o Typical categories are housing, food, recurring bills, and entertainment.
o Categories should fit your lifestyle. Include those areas of spending that are unique to you.
o Account for the once or twice a year expenses such as auto insurance and taxes.
The next area to address is what’s coming in. Determine your monthly income including wages, interest income, dividends, and bonuses. Once you know how much you make and how where you are spending the money, you’ve got a budget. Adjust the spending until you achieve balance between your income and expenses. Your goal with the spreadsheet is to fine tune it until you have a line item for all the income and all the expenses you incur. This fine tuning process will highlight areas of spending which may be out of your perceived spending plan. By having setup the budget you are now equipped to make the adjustments needed to bring about financial success.
The final step is to get into the habit of budgeting. To be successful this will take persistence. You will have a number of slip ups along the way. Don’t be discouraged by this. The goal is not perfection in record keeping, but, rather money management. Here are some tidbits to help you on your journey.
o If you can’t spend less to bring balance between income and expenses, earn more.
o Pay cash whenever possible and record the transaction.
o Develop a habit of thinking ahead. Plan for upcoming situations and prepare for it.
o Keep good records. If you don’t write it down, chances are you won’t stick to it.
o As your finances change so should your budget. View the budget as a living document that changes with you.
Creating a budget is advantageous when planning for your financial future. The budget is really a tool to determine spending patterns and habits. A budget is a way in which you can take control of cash flow. An excel spreadsheet or computer software can be a viable resource when creating a budget.
An Inventory Management System is not only about keeping records of the stocks movement in and out of a store or warehouse in an Excel spreadsheet. A simple inventory management system should be able to identify how much goods are left in the store, which products require re-order and where, when and which goods have moved in and out of the warehouse. Thus, generating accurate reports is important. But to be able to do this, the data must first be organised systematically.
Using the details, we could set up a pivot table to summarise the stocks that move in and out of the store. It will allow us to organise the report so that we could identify the stock level by product groups, product name and the locations they have moved to and from. The records could also be grouped such that we can track the stock movements by month. In our report below (refer to row above grand total), we can quickly establish that there is a net increase of 19 units of adhesives in the month of Oct, a net decrease of 3 units in the month of November, another 4 units drop in Dec, which all resulted in 12 units of adhesive left in the store.
Using the same report, we could drill down to see the movements of individual products
in the Adhesive group by month.
Alternatively, we could also present the quantity of stocks remaining in the store by changing the setting of the report. In our example below, we are able to know that the store is left with 4 units of “3M Command ADH Large Hook” in Nov and 1 unit in Dec. If we sort the report in descending order, we could immediately list down the products we have to top up quickly to prevent an out-of-stock situation.
And if this report is still not too relevant, we could even show the stock movements (the ins and the outs) for each month and then the stock balance for the month to better explain the stock movements for the month.
To make it easier to capture the details and improve on the accuracy of the data records, we also shared on we could set up a dropdown list that is dependent on the selection made by the user using another drop list.
The complete system helps to improve the data entered into the inventory management system and then prepare reports that help the store manager to make better quality decisions with regards to stock replenishment and stock movement in the store.
So you’ve set up the basics – separate checking account, month end bank statement and duplicate checks (see “Home Business Record Keeping – The Simple Way” article for more details) – now how do keep your records? Let’s start with expenses.
Use either a file folder or a large envelope. Write “Daily Expenses” on it. Every time you order something through the internet; print out your receipt and stick it in “Daily Expenses”. If you go to your local office supply store, as soon as you get home, put your receipt in the folder.
Also set up either an excel spreadsheet or buy the old fashion spreadsheets at your office supply store. They may be old but they work just as well. You’ll be recording your expenses daily and totaling your columns at the end of the month.
At the top left corner of your spreadsheet, write the month and year. Down the left side, you’ll record the date of the expense and whom you paid. Use separate columns. For example: 05/15/2006 Media Marketing, Inc.
Across the top of the page, you’ll list your expense categories starting with column 4 if you are using an Excel spreadsheet. Since you are running a home based business and you are a sole proprietor, we are assuming you do not have any payroll. How you pay yourself will be covered in another article.
Write the following categories in your top columns. It’s helpful to list them from left to right with left being the most used category. Let’s say you begin with Advertising. Then add the following categories (not necessarily in this order): Office Expense, Utilities, Phone, Vehicle Expense, Contributions, Meals/Entertainment, Travel, Taxes, Licenses and Permits, Bank Fees, Credit Card Fees, Legal/Accounting. Skip a few columns and at the far right list your next to last column as Income. List you last column as Total.
Now at the end of the day pull out your receipts and log in your expenses.
What about the good stuff? Your profit! If you are using a credit card service, PayPal or another online processor, you should be able to log online to check you daily balance. If they don’t post transactions until the following day, just post it the next morning on your spreadsheet. If you receive checks in the mail, record the total amount of deposit. So at the end of day or the next morning write the date, “Income” and the total of monies received. And as always, keep copies of your records. Make copies of your deposit slips and print out your online processor statements monthly.
And that’s the basic information you need to set up your expense and income report. If you are very familiar with software such as Microsoft Money or QuickBooks, go ahead and use them. Unfortunately, many entrepreneurs buy the software and post expense (or what they think are expenses) into categories that may not be correct. When your Accountant has to straighten out these entries it takes his or her office time and that means more cost to you.
That’s why a simple system, such as above, will save you time and money in the long run.