Getting Started with Personal Budgeting

Have you ever stopped to think that a rich man with an astonishingly high income can still be in dire financial straits and relying entirely on small loan companies such as to stay afloat?

It’s a simple enough trap to fall into, and all it requires is for someone to have a poor handle on their personal finances, and to spend more than they bring in.

On the other hand, it’s entirely possible for someone with a modest income to be living well within their means and consistently putting away a nice chunk of change each month in savings.

Personal Budgeting

Here are a few starter budgeting tips to help you on the right side of the divide.

Have long-term goals and targets

The first thing to do when you’re creating a budget, is to have long-term goals and targets that you use to manage your savings. It’s all well and good to move a certain amount of money into a savings account each month, but if you don’t have a clear idea what that money’s being put aside for, you may find that you’re either too scared to ever withdraw it, or that it becomes too easy to spend it on a questionable purchase.

If you track several long-term goals such as “mortgage payments” or “new car” and record how much money you’re setting aside for those each month, you’ll not only avoid wasteful spending, but you’ll also make real progress towards tangible achievements.

Assign every dollar to a category

This point is related to the first one about long-term savings goals, but here the emphasis is on short-term events and expenses.

If you receive a certain amount of money and save half of it away for long-term goals, your work isn’t yet done. You still have to put aside money for more mundane expenses like rent, bills and groceries. Make a note of these categories and decide how much money should be put aside for each one.

With the remainder of the money you’ve received after short-term expenses and long-term goals, create additional spending categories. For example, two hundred dollars for “nights out” and one hundred for “fun purchases”.

If you assign every dollar you make to some category, you allow yourself to enjoy guilt-free leisure spending, while still being financially responsible.

Don’t budget money you don’t have yet, but look ahead

A budget is no good if you’re planning what to do with money you haven’t got yet. You know what they say about that sort of thing; “don’t count your chickens before you’re hatched”.

The problem with budgeting for your expected income is that it’s never completely predictable. You can hope it will be – and it likely will for the most part. But what if one month you lose your job? Or get a bonus? Or your freelance client has less work available?

The event can be good or bad, but in either case, a different-than-expected income one month will completely demolish a premature budget.

Instead, make a list of your monthly expenses and tally up the minimum that you’ll to spend to cover them. This will be your “emergency financial target”.

When the money hits your account, budget for these expenses first, and then cover the rest of your preferred categories.

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