There are many great reasons to get started in personal budgeting. It can help you to get out of debt, save for a big purchase, such as a car or home, or even just allow you to stop living paycheck to paycheck. Personal budgeting is a good skill to have, and it is easy to get started.
The first step when getting started in personal budgeting is to add up the total amount of money coming into the household after taxes. If this amount changes from week to week, use the last three months of pay to find an average, and remember that, when it comes to income, it is always better to round down than it is to round up. Rounding down prevents you from coming up short at the end of the month. The amount that you reach is the total amount of money you have to use throughout a month.
The second step is to list all of your expenses. Start with monthly expenses, such as rent or mortgage payments, utilities, or credit cards. Don't forget payments that are made less often, such as insurance premiums or scheduled tax payments. You should also budget in money for food, clothing and other necessities, transportation, and recreational "fun money." Add all of these expenses up.
Compare the total amount of money you earn compared to the total amount you spend. Ideally, the second number is lower, leaving money for savings. It is more common, however, for the amount of money coming in to be less than the amount of money being spent. This leads to credit problems, and makes it difficult to pay bills on time or build a savings account.
There are two ways to fix this problem. The first is to make more money. This may include working overtime or picking up a second job. The second option is to spend less money, and this is often the easier way to fix a spending problem by creating a personal budgeting goal, and sticking with it.
Review the list of your expenses, and separate the necessary payments, such as rent and utilities, from the unnecessary expenses, such as cable. Leave out groceries and other expenses for now. Take the total amount of necessary payments, and subtract it from your total income. The remaining money is what you have available for everything else.
The next step is to go back to your list of grocery, clothing, transportation, and entertainment costs. It is time to figure out where you can reduce your spending. Many people have luck with decreasing the amount of money they spend on groceries, clothing, and other personal needs. Renting movies may be cheaper than paying for a premium cable or satellite television service. Your goal should be to reduce your spending until you have enough money to cover all of your expenses and still have some money extra for paying down debt or starting a savings account.
The hardest part of starting personal budgeting is sticking with your plan. It is important to remind yourself often how important using a budget is. Keep track of your spending, and find a way to track your progress on financial goals to stay within your budget. It might take a few months, but eventually budgeting will become a habit.