Budgeting Basics
A Look at Personal Budgeting Basics
One of the most important practical life skills is personal budgeting. Learning budgeting basics is essential to financial success. Whether you are in a good financial status now or you are struggling to fix your finances, it is always a good idea to track how much you are earning and how much you are spending.
The first step of budgeting basics is simple – write the numbers down. Start with the amount of your after-tax salary. There is no point to budgeting if you do not actually see the figures. You may know how much you are earning a month but as you write down the numbers, you will be surprised to find out how you are actually spending your money.
To find this out, proceed with the next step of budgeting basics – gather your bills and receipts for the month such as your house rent or mortgage, credit card bills, car payment, insurance payment, utilities, groceries, magazine subscriptions and etcetera. List down all the important expenses first and then the non-essentials. When you are done with this part, it would be like your vision clearing up because you will see where all your money is going to. Individually, the small expenses seem nothing but when you add them all up in this way, the truth of your spending will hit you.
This is where you can now identify where you are overspending and find ways to change your spending habits. You do not have to completely give up the fun stuff like eating out. You can still do this but not as frequently. Treating yourself once in a while is important because it actually increases the chances of you sticking with your budget since it is not too restrictive. So do not forget to budget for your recreation and relaxation as well.
In addition, build up an emergency fund. Obviously, the money you set aside for this fund are for emergencies or unexpected situations only. A surprise 1-day sale at your favorite shoe store is not considered an emergency. Be strict about how you save for your emergency fund and how you use it so when the real emergency comes up – car repair, illness, accidents, and etc. – you have something to use. Unforeseen events are common budget busters so make sure you factor them in your monthly budgeting.
To summarize the personal budgeting basics discussed above, collect your bill statements and receipts each month, list down how much your expenses come up to and subtract this from your net income. Do not forget to make some allowance for your daily needs like food, gas and etcetera. Set aside a small amount not tied to any particular expense. These budgeting basics will not work if you do not keep it up each and every month. Managing your finances takes commitment so do everything you can to stick with your budgeting. Later on you will recognize your spending patterns and identify strategies to better control them.
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