How do I Design a Personal Budget?

by Joy Uyeno, Demand Media
    A budget will keep you from penny pinching at the end of each month.

    A budget will keep you from penny pinching at the end of each month.

    For anyone who has ever lived paycheck-to-paycheck or felt a little bit nervous after looking at their accounts toward the end of the month, keeping a budget will enable you to be free from that gut-wrenching feeling by taking the mystery out of your spending habits. Designing a personal budget comes down to understanding how much money you're bringing in, figuring out where your money is going, and setting boundaries and guidelines for how to spend your money in a way that keeps you out of the red.

    Step 1

    Create a log of all the income you receive each month, including paychecks, any freelance work and passive income. Doing this gives you a starting point for your budget. Often, people are so wrapped up in trying to keep up with bills and life expenses that they neglect to step back and look at what they have to work with.

    Step 2

    For one week, track everything you spend money on. Include every packet of gum, every bagel and every takeout lunch in your weeklong journal. At the end of the week, break down the money you've spent into broad categories, such as transportation, groceries and entertainment. You may be surprised to see how much your little indulgences add up at the week's end. Use your journal to project your spending for the month.

    Step 3

    Create a list of all your monthly bills. Include utilities, credit card payments, mortgage payments or rent, and any other recurring charges. Add the final number to your monthly spending projection to understand where your money is going each month. If you're spending more than you're making, you'll need to find ways to cut back.

    Step 4

    Allocate at least 10 percent of your income to savings, and set up automatic transfers from your checking to your savings account. Consider this one of your "bills" so that you don't give yourself any wiggle room in the future.

    Step 5

    Strategize a way to pay off your credit cards. Paying only the minimum amount toward your credit cards each month is a mistake because costly interest rates contribute to your debt. The sooner you pay off your credit cards, the sooner you'll have more money to contribute to savings.

    Step 6

    Adjust your budget in realistic ways. For example, don't bring your entertainment budget down to zero -- you will only end up rebelling in the long run. Instead, make concessions, like making your coffee at home three days a week instead of purchasing a mocha every morning or using public transportation every other week to save on gas. Just as little purchases add up quickly, little cutbacks can contribute greatly to your overall savings.

    About the Author

    Joy Uyeno has been writing about travel, food, fashion, culture and finance since 2005. For three years she wrote a column for the "Honolulu Star-Bulletin" aimed at young and first-time travelers. Her writing has appeared in several local and national publications, including the 2008 anthology "Honolulu Stories." She holds a Master of Arts in writing and publishing from Emerson College.

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