Save Time and Money by Creating a Personal BudgetPosted on August 25th, 2012 Guest Poster No comments
Have you ever felt like your paycheck is disappearing as soon as you cash it in? While creating a personal financial budget may not seem necessary, it is one of the most important tricks for boosting your savings in a much shorter time period than you may think is possible. Instead of spending money as you go without a care in the world, budgets not only prevent unnecessary spending, but help in creating positive financial habits that will help you permanently in the long run. To help with the budget creation process, here are 5 steps in creating a personal budget that'll have you saving in no time.
Income Recording: Preventing Unnecessary Debt
Before researching into one's expenses, one should always record all of his or her sources of income. The biggest mistake in creating a personal budget is when an individual doesn't keep in mind all earnings before and after taxation. If you're being paid by the usual weekly or biweekly paycheck, taxes should have already been automatically taken off. If you're being paid by a net income or salary, you may have to manually deduct taxes from your total income.
Breaking Down the Numbers: Categorizing the Necessary From the Unneeded
After you've figured out your total earnings on a monthly to yearly basis, gather all of your past financial statements (a year or two back should be sufficient) in regards to expenses such as your utility bills, lease payments for automobiles, and mortgages. Any kind of personal spending receipts will also be beneficial. As your statements should be dated, organize them into monthly categories to get an idea on how much you usually spend per month. This step should help you in the next step of figuring out the most important part of a personal budget: picking out the fixed expenses that can't be skipped out in comparison to your avoidable expenses. (If you use personal finance software, such as Quicken, it will sort out your expenses by type automatically.)
Picking Out the Avoidable from the Fixed
Trim off preventable purchases and variable expenses for luxury and pleasurable purposes by setting out monthly budgets. If your past financial statements and purchase receipts indicate a lot of variable spending, then you're most likely spending excessively. Don't try to completely cut off optional expenses, though - not leaving a little money for fun is a surefire way to ensure you don't follow your budget!
Determine a Goal in Mind
Once your avoidable expenses have been determined, it is time to come up with a savings goal. A reasonable goal to start with is to aim to spend only 70-80% of your total yearly earnings. Do keep in mind that you may not be stay entirely in budget for the first few months, as budgets when first created are often a little bit too idealistic. As long as your income is growing compared to your expenses, you're making progress!
The First Few Months are the Most Important to Record
After you've set up a monthly budget and both monthly and yearly goals in savings, record every type of spending you find yourself doing for the first few months. This allows you to prioritize your spending habits and further determine what exactly you're indulging too much in.
While making a personal budget may seem easy, keeping in line with it can be frustrating at times. With practice, personal budgets will become easier to follow through with and before you know it, your improved spending practices will become habitual. In turn, your savings will blossom in much less time than expected.
This guest post is courtesy of the PPI Claims team at PPI Claims Company, #1 in PPI claims information.