Do you want to reach your goals? Learn how to create a Personal Budget

Financial Budgeting

Financial Budgeting- Building a Personal Financial Budget Can Help You Achieve Your Goals. Image Courtesy of Stuart Miles at freedigitalphotos.net

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Welcome to the next lesson of Free Financial Education. In this lesson we are going to focus on the following things:

• Overview of Budgets
• Types of Budgets
• Tips on Setting Up Your Own Personal Budget
• Budget Templates
• Don't Want to Waste Time? Try a Budget Planning Software Tool- I will show you a few choices.

Looking back ten years ago if you would have asked me if I had a budget plan, I would have probably answer something like " What is wrong with you..." but now I am a little older and one thing I have come to understand is the fact that having a budget is one of the most important things every individual should have.

Unless you are filthy rich and have so much money that will last you ten lifetimes then I would say that's not as important, but in all actuality, even the most powerful and richest people in the world create financial budgets. Usually the more we have, the more we tend to spend and money does not last forever so with that being said we all need a plan to make the money last.

Budget Overview

Financial Budgeting

A budget is roughly an itemized summary of income(money coming in) and

expenditures(money going out) for a set or given period of time.

It is usually created using a spreadsheet or a template and it provides an organized, concrete, and easy breakdown of how much money comes in and how much of the money goes out.

An invaluable tool to help you clearly understand and prioritize your spending and how you manage your money regardless of how much or how little money you have.

Planning and effectively monitoring your budget will allow you to identify areas of wasteful

expenditures, target those areas in order to adapt and change as your financial situation changes in order to reach your financial goals.

Once you begin breaking down expenses you will identify areas where you have probably spent too much and can afford to cut down. You will learn how easy money goes out as well as how even a little spending here and there will add up quickly.

Types of Budgets

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The whole idea behind a budget is to spend less than you actually make so that you can allocate funds into every category and have enough leftover to save, invest, or use to accomplish a goal. In business there are several types of budgets such as personnel budgets, capital budgets, operating budgets, and sales budgets. Each budget has different set-ups and purposes, but for right now, we will just focus on personal budgets and we can cover business budgets on a different lesson.

Now we are going to take a look plus examine personal budgets to see which one suites you best. First, you need to be honest with yourself and figure out which one would benefit you the most. Understanding each type of budget is equally as important as understanding the purpose of creating a budget. In this lesson we are going to cover the following type of budgets:

• Zero Sum Budget- The main idea in this budget is to zero out at the end of the month. In other words, In this budget you subtract your expenses from your income to try and get down to zero dollars left at the end of the month. Zero Sum Budget is perfect for detailed oriented individuals who want to know exactly where each dollar is going in or out. Zero Sum Budget is the most detailed of the budgets where you allocate out each spending category and go back and reallocate if you go over in one category.

• Three Step Budget- Created by Andrew Tobias, The Three Step of Budget is perfect for those who prefer not to follow categories and complex strategies. The steps are the following:
  • Destroy all of your credit cards
  • Invest 20% of your earnings
  • Live on 80% of your earnings
  • The only rule is to never go over 80% spending
• Broad Percentage Allocations- This budget consists of a broad range of percentages and it is a little more complex than the three strep budget. There are a few different versions of this particular type of budget, Richard Jenkins 60% Solution and Elizabeth Warren's Balance Money Formula. The concept behind this budget is to allocate a large percentage to your needs such as housing and food, a percentage to savings, and a percentage to the things you want. Structure and balance without so many details to overwhelm you or worries about which category gets money.

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Ultimately, you would need to assess your personality type in order to find the type of budget that best fits you personality. It is important that you analyze your strategy and pick the best suitable option. Once you have identified the type of budget that best works for you it is imperative that you stick with it and you will see the results.

Tips on How to Begin Creating a Budget

Write down all of your short and long-term goals. Image courtesy of Stuart Miles at freedigitalphotos.net

The next part we need to figure out how to create our own personal budget if you need some ideas to get you started and then I will give you a budget template that you can print out to get you started right away. Different individuals have certain preferences as to where they want to allocate their earnings. Not all budgets will look the same since not all of us have the same goals. Should you not be interested in a particular category or title, simply replace it with one of importance to you. The following steps will help you plan your own budget.

Set Up Your Goals

The very first step before even thinking about creating a budget should be to write down all of your short and long term financial goals. I understand this may sound silly at first, but it is scientifically proven that people who write and set their goals are twice as likely to accomplish those goals. Use this list to come back to it periodically to find out how close you are to achieving a particular goal and to see the improvement over a period of time.

Short term goals should take no longer than a year while long term goals can be split into periods such as 2, 5, 10, 25 years and so forth. Remember, it is okay to be flexible with your goals, which means you have the power to modify them just be mindful and do not over do it.

Figure Out Your Earnings and Income

The first step just before creating any budget is to identify all the money coming in better known as Income. One thing you should keep in mind is that not all the money you make counts as available income so be sure to deduct things such as health insurance, social security, taxes, 401(k), and flexible spending. After doing all that, whatever you have left over is the amount you will have available to create your budget, also know and Net Income.

Device a Plan

Depending on your style you can go about this a couple of different ways. One way is to decide your fixed expenses and variable expenses and start there. Another way you can go about it if you are the type of person that needs to see everything then I suggest you go with a detailed list. Either way the results are going to be the same, but having a detailed list will give you a better understanding on how the money is broken down and it is a little more simple than having to figure out what is a fixed and variable expense.

What your Budget Should Look Like

Let's begin writing down our Sample Budget. First, we figure out our earnings/income and for this sample we will assume Manny gets paid $1,200.00 dollars bi-weekly meaning his monthly pay is $2,400.00 dollars.

1. Manny has a Roth IRA and deposits $50.00 per pay period which equals to $100 monthly
2. Manny has to pay a monthly charge of $150.00 for Health Insurance
3. Since Manny works for a Company all other deductions such as tax, social security, and other deductions are already deducted from his pay meaning he brings home roughly $880.00 per pay period after deductions.
4. Next we need to figure out Manny's net income before we begin the budget.
5. Earnings per Month=$1,200x2=$2,400 After all deductions the net income is $1,510 per month. We figured this number out by subtracting $150 for insurance and $100 for investments from the $1,760 dollars Manny brings home after deductions.
6. Now we can begin building our budget.

Begin writing down all of your expenses per month. You need to be as honest as possible if you want to figure out exactly where your money is going. You can go about this a few different ways, but I suggest writing down the most essential expenses in one row and the things you purchase but can live without in a different row.

1. Rent/Mortgage
2. Car Payment
3. Car Insurance
4. Utilities
   1. Gas
   2. Electric
   3. Water (If Applicable)
   4. Cable/Satellite/TV (If Applicable)
   5. Internet (If Applicable)
   6. Phone/Cell Phone
   7. Garbage Pick-up (If Applicable)
5. Groceries
6. Gas/Transportation/Fuel
7. Shopping
   1. Clothes
   2. Shoes
   3. Accessories (If Applicable)
8. Savings (If Applicable)
9. Eating Out
10. Entertainment
    1. Anything you do for fun that you spend money on such as clubbing, zoo, theme parks, cinema, concerts, etc...

Now you can work on the next step and classify whether this is a fixed expense or variable if you want to have a deeper understanding. For instance, rent/mortgage is a fixed expense because you have to pay roughly the same amount every month whereas shopping you only do it when you want or need something meaning it is a variable expense.

Once you have written down all of your expenditure categories you can begin to analyze areas where you might be spending too much money and allocate money towards a different category or towards your savings and investments.

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Budget Tools

Budgets can be used for several purposes and some folks even plan and create budgets for big life events. Online, you can find a host of templates for different events such as weddings, low budget projects, low income families etc. You can create a monthly or a year budget. If you happen to have Microsoft Excel you can begin working on a budget on a spreadsheet which is one of the most popular ways to create budgets and it does all the calculations for you, but it does require a little bit of knowledge on the program to set it all up so I have a couple of templates I would like to share with you to make it a bit easier for people who can't use Excel. Here are a few different templates to choose from.

Personal-monthly-budget

Yearly personal-budget-spreadsheet

Family-budget-planner

Household-budget-planner

Weekly-budget-spreadsheet

Microsoft Budget Template

If you do not feel comfortable using Microsoft Excel there here are a couple of Budget templates that do not have the spreadsheet function and you can just print and fill out to your convenience.

Daily_Budget_Spending

Weekly_Budget

Monthly_Budget

Yearly_Budget_Planner

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