Creating a personal budget is an effective way to take control of your spending. When you figure out where you spend money and take comprehensive steps to not spend more than you plan to, you'll have extra funds available for other areas that need it. Your personal budget can even help you save to take a much-needed vacation or to buy a new car. Creating a personal budget begins with identifying where you spend money, making a plan for where you want to spend the money instead and sticking to that plan once it is made.
Gather recent household bills, credit card statements or sales receipts, bank statements and paycheck stubs. Three to 12 months worth of paperwork to reference helps the most, but even the most recent ones give you a starting place for your budget.
List each regular bill you have and write down the average monthly amount you pay. Regular bills include rent or mortgage, insurance and electricity.
List all other things you've regularly spent money on recently. Use your credit card statements, bank statements or checkbook ledger and any sales receipts to make sure you don't miss any expenditures. Groceries, clothing, household goods and restaurants are likely to be in this list. Put dollar amounts next to each item showing how much money you've spent on each on average in a given month.
Rearrange, organize and combine the items in each list to create general spending categories, such as "household," "entertainment," and "utilities." You can also create subcategories to keep budget sections organized. Household could be broken down into "household-rent," "household-utilities," and "household-goods," for example.
Add the total monthly dollar amounts from each small spending item into the broader category you've added it to. If you had a separate entry for restaurants and you merged that with groceries into a general food category, add the total spending estimates from both restaurants and groceries to the food category.
Adjust the total dollar amounts listed for each category as needed or desired, making sure that the total of all your spending categories is not more than the total amount of take home pay you receive in income. The final dollar amounts listed for each category or subcategory are your new personal budget amounts for those areas. Your goal is to track and control spending to ensure you do not spend more in a given category than you have budgeted for it. So if you budgeted $25 a month for restaurants, once your budget shows you have spent that amount for the month already, you'll know that you need to cook dinner instead of ordering a pizza.
- Be flexible for the first few months of using a personal budget, particularly if you had to estimate some of your expenses. Once you've tracked your spending and tried to stay within budget for several months, you may find you need to make adjustments for it to work best.
- Dave Ramsey: Do Your Dollars Have Names?
- "The Total Money Makeover: A Proven Plan for Financial Fitness"; Dave Ramsey; 2007
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