How to Create Your Best Personal Budget
Image sourced by NORTHFOLK @northfolk
Many people get squeamish at the mere thought of having to make a personal budget, let alone stick with it. But. . .
A personal budget is really a “Spending Plan” – a tool that guides your spending behavior and activities and helps you achieve your financial goals and dreams.
Perhaps that means buying a house, a new car or going on vacation. Or enjoying a comfortable retirement someday. The sky’s the limit!
Whatever your personal goal is, you need a financial plan. And a personal budget – custom made for you – is the ticket.
Throughout the course of my career in accounting, I have worked with clients who earned $50,000 or $100,000 a year. Some $200,000 and $250,000. And even a few multimillionaires.
Regardless, they all had a personal budget. And used that budget or plan as a guide to influence or govern their spending behavior.
Your incentive to create a realistic personal budget, implement it and stick with it, is your desire to achieve your financial goals. View your personal budget as the pathway to financial freedom!
What’s more, many people conclude that a budget has to be rigid. Not so.
I recommend a Flexible Budget or Flexible Personal Budget.
When I started budgeting in 1974 when my Dad gave me my allowance for the entire semester in one shot – cash in hand – I came up with an average spending amount.
I divided the amount he gave me by the number of weeks in the semester.
Let’s say that amount was $15. In other words, if I spent $15 a week or less, I would always have money to spend. And if I spent more than $15 in one week, I could get back on track by spending less than $15 the next week, etc. On the other hand, if I spent less than $15 in one week, I built up a cash cushion and had extra money available to spend in the future.
Once I created my personal budgeting system – my personal spending system – I gained control over my money.
And I gained peace of mind and financial freedom.
My income, expenses and spending preferences may be different from yours.
And that’s just it. Your plan should be custom to you!
Take stock of your income – how you earn money. That could be a salary, overtime, bonus or commissions. Or a combination.
Take stock of your expenses – what you spend your money on. You’ll find expenses that are monthly, quarterly and annual (once a year). Some expenses are required – for example, rent, mortgage, car payments, debt service, utilities, etc. You have to pay these expenses every month, rain or shine. Other expenses you may be able to avoid.
Subtract your estimated expenses from your income. Is there money left over? In other words, is your total income minus your total expenses greater than zero?
Look for ways to reduce your expenses to improve your cash flow. One of the best ways to accomplish this is to eliminate waste.
Are you paying for items that you don’t use or are marginal to you? Recently, I canceled a subscription to BBC (British Broadcasting Company) because I wasn’t watching their shows anymore; Amazon Prime and Netflix offered a wide selection of movies and TV shows; the monthly subscription cost was $6.95. I also had subscribed to a marketing newsletter which cost $29 a month; truth be told, I hadn’t read an issue for four months. I canceled both. With a few clicks, I saved $35.95 a month. Easy.
The trick was ‘pushing’ myself to take action to cancel. To be candid, it took me a few months before I actually took action to cancel the subscriptions.
But I got there and now save the money every month. I have plenty of better uses for the money. How about you?
Track your spending. Get a handle on what your spend your money on and how you spend your hard-earned money. In particular, examine your discretionary spending. Look for alternatives. Mix up your purchases. Mix and match.
How many times a week do you go to Starbucks? I like Starbucks but if you’ve been following Budget and Grow Rich®, you know that I prefer McDonald’s iced coffee; at full retail, the McDonald’s iced coffee costs approximately $1.50 less than a Starbucks. Believe me, the savings add up.
Separately, years ago, my now ex-wife and I used to go out on some Saturday nights with the “spending crowd.” They liked to go to expensive restaurants and order Big! We had fun, but frankly, other restaurants in our area were just fine and probably cost 15% to 20% less.
Look before you leap. You won’t miss the items, especially knowing that you can direct the money to more productive and important areas and spending categories.
I don’t miss the extraneous items one bit. And if I do, I can buy one every once in a while.
Continuously monitor your results – is your plan working? What can you do to earn more income and reduce expenses?
When you create a custom personal budget, you’ll gain control over your money, peace of mind and financial freedom.
Give it a whirl!
We’ll be covering this topic and more in greater depth in the upcoming weeks.
And to free up cash flow, Save More Money on Groceries, Every Day – click here.
See you next week.
Arthur V.
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