Personal Finance Budgeting
The Foundation of Money Management

Personal finance budgeting is the backbone of good money management. Without a working budget, you’re often left wondering where your money went. Once your budget is established, you’ll know where your money’s coming from and where it’s going.

Budget Calculator

The concept of personal finance budgeting is simple. Your goal is to bring in more money than you spend. That’s often easier said than done.

However, once your budget is on paper and in front of you, some things will pop out as bad spending habits and can be easily fixed.

Personal finance budgeting takes planning, thought, creativity and most importantly commitment. You’re not in a race so take your time with this. It’s important to get it right.

If you’ve never created a budget before, this may seem like an overwhelming task. Just relax and take one step at a time. You’ll get there.

Hopefully you have got your financial paperwork organized so you can easily locate what you need when you need it. This will take a lot of the frustration out of the process. If you haven’t organized yet, head over to the “Get Organized” section for help with this.

Let’s Get Started

If you are currently using budget software such as Quicken or Microsoft Money, your records will already be somewhat organized and easy to find. Personal finance software can be very helpful in keeping you organized.

If you have Excel, you can download the Personal Finance Budgeting spreadsheet to help you keep track of your information as you collect it. This is a very helpful money worksheet and can be used with your budgeting software.

If you don’t have Excel or prefer to use pen and paper, that’s fine too. Either way you choose, take some time to find your starting point – where you are right now.

Start by gathering and recording your income. This is usually the easiest part because most people know exactly how much they make. Use your paycheck stub and record your gross income (before taxes) and any deductions (including taxes, insurance deductions, your 401K contributions, etc.). Don't record your net pay (the amount you bring home each pay day). If you have any other regular sources of income like child support, alimony or a second job, list these too.

Don’t list income that you cannot depend on receiving. That way if you do receive it, it will be a bonus. If you are not using the Excel spreadsheet, all income should be listed in a column on the left. Your deductions should be listed in the expense column on the right.

Collect Your Statements

Now it’s time to see how you’re spending money. Start by collecting your bank statements and/or credit card statements. Between the two of these, you should get a pretty good picture of what you’re spending each month and when it’s due.

It’s ideal if you have at least one year’s worth of bank or credit card statements. This will give you a good overview of your spending patterns. It also let’s you easily see when things like property taxes and other periodic bills are due each year. These don’t usually occur monthly so they are easy to overlook.

If you don’t have a bank account, take a few minutes and check out the “Banking Information” section. It has all the information you’ll need to choose an account that’s right for you.

If you pay your bills using cash or money orders, you can go through your statements and get the “what’s due and when” information from there. Since most recurring bills are due about the same time each month, this shouldn’t be too time-consuming.

Record all your expenses in the column on the right. Your goal is to see what you spend each month. For bills with fixed amounts this will be easy. For the ones that vary in amount from month to month, use an average.

For bills that are due once a year, take the total amount due and divide it by 12. This will give you the amount you’ll need to have each month to cover these expenses. Set aside this amount monthly in an interest bearing account. Get more information on which accounts pay the most interest.

Track Your Impulse Spending

Since most of your recurring bills are probably paid using either a checking account or a credit card, all that’s left to do is track your cash purchases.

You probably don’t carry a ton of cash around but you may use it to buy things like coffee, lunch, vending machine items and other small purchases. This is the kind of spending that can sneak up and bite you if you’re not careful.

Track Spending

Get a small notebook and pen and write down all cash purchases you make for one month. You will probably be shocked when you see on paper how you spend your cash.

These impulse purchases are easily forgotten and can really throw your personal finance budget off balance. I know it’s inconvenient but it will be one of the most revealing things you’ll do.

At the end of one month record the total amount of cash purchases you made in the right column along with your other expenses. Your goal is to be able to account for every dollar spent. Only then can you see your true financial picture and create your personal finance budget.

Total the amounts in the income column to the left and the expense column on the right. Write these amounts at the bottom of each column.

What Will You Do With This Knowledge?

Congratulations! You’ve taken a huge step toward gaining control over your financial life. Now that everything is in front of you, it’s easy to see where, when and how you’re spending your money. Now it's time to start managing your money.

At this point you have some decisions to make. If you’re bringing in more money than you’re spending and you see nothing you want to change, then you’re done. On the other hand, if you’re not happy with what you see, there are two things you can do to change it.

Cut Expenses and Save Money – This may be enough if you’ve identified some bad spending habits that can easily be eliminated and you’re close to balancing.

Increase Income and Start Making More Money – This is sometime necessary if you’ve cut expenses to the bone and are still short each month.

Take some time to read through the “Saving Money” and “Making More Money” sections. You’ll find useful money saving tips, suggestions and great money making ideas. Also check out the "Time Savers" section. If time is money, these helpful ideas will go a long way.

If there is a big gap between what you make and what you spend, you’ll need to evaluate everything, do some soul-searching and decide what’s important to you. If you decide to let some things go just remember, you can always re-build but next time you’ll do it on a solid foundation. You’ll be stronger and wiser for having done this.

Your Balanced Budget

Once you have cut your expenses and/or increased your income to the point your personal finance budget is balanced, you can focus on eliminating debt if you have any. Head over to the "Debt" section to find out the fastest, surest way to get out of debt.

Just remember you’ll need to review your personal finance budget from time to time. When things change, your budget should too. You’ll never have to start from scratch again though. You’ll simply make small adjustments when you need to.

Financial Success

You Did It!

You’ve mastered personal finance budgeting, are well on your way to paying off your debts and your financial future is looking bright.

There are very few financial surprises anymore. You know what bills are coming, when they’re coming and you have money set aside earning interest to pay for them. Doesn’t it feel good?

Once you no longer have debt looming over your head, you can use the extra money to start a savings or retirement account. Check out the section on investing to find out more about wealth building and retirement planning.

From Personal Finance Budgeting to Home