Steps to Creating a Personal Budget

By now, you've most likely heard about the advantages of creating and sticking to a budget. You just haven't gotten around to making one. Creating a personal budget isn't very difficult and is essential to ensuring that you have a successful financial future, free of as much burdensome debt as possible.

The Length of the Budget

Many personal budgets are set up on a monthly basis, meaning you compare the income you earn in one month to the expenses you have each month. Depending on how often you get paid or how often your bills are due, you may choose to make a weekly, bi-weekly or annual budget. You also may want to set up a monthly budget and have one that covers the entire year, especially if you are making a budget with a large goal, such as saving for a house or big vacation, in mind.

Figure Out Your Income

How you determine your income depends on the length of your budget. If you are doing a weekly budget and get paid weekly, you simply have to look at your weekly pay stub. If you are doing a monthly budget and get paid weekly, multiply your weekly income by 4. If you have an irregular source of income, such as you get paid on commission or are self-employed, look at the income from the past year and do your best to come up with an approximate monthly income.

Track Your Expenses

This step can be tedious or it can be very fun, depending on your taste. You should track your expenses for at least a month, preferably two or three, before creating the budget, so that you have a realistic idea of how you spend your money. You can collect individual receipts and bills for the month or record everything in a small memo pad. At the end of the month, divide your expenses into categories to get an idea of what you are spending and to get an idea of what, if anything, you need to cut out.

Choose a Method

You have a wide range of options to choose from for your budgeting method. Some online budgeting programs or software programs promise to make budgeting a snap; all you'll need to do is type in your account information and remember to pay your bills. If the idea of putting your financial information on the Internet or even on a computer bothers you, you may choose to stick to the classic, pen and paper budget. You also could try creating cash envelopes for each of your expense categories as a way to budget. Once the money in the envelope is gone, you can't spend any more in that category.