Setting up a Personal Budget

I helped one of my friends, whenever she was in a financial crisis. She presumed I was earning more than her. One day, by chance, she happened to come across one of my latest pay slip stubs and was surprised to know I earned less than her. She wanted to know how I managed my expenses and still helped her out at the time of need. I asked her whether she had a personal monthly budget planned out and her answer was an emphatic "No".

Believe me people, budgeting or financially planning is a must because it is a cornerstone to know your assets and also understand where you stand financially. Budgeting is necessary to manage your money. There is a saying among the old people, "failing to plan is equivalent to planning to fail".

One of the ways to safeguard your future not only during a recession, but also in a boom, is by setting up a personal budget. Many of us prefer to spend and save as the days come and go. But, how many of us realize that the merit of personal budget planning is for our own self-interest.

Preparing or chalking up a personal budget is pretty hard; accounting for the amounts spend each day is not an easy job and many people find it very unpleasant. This is hurdle is only short-lived and if you stick to your budgeting you would see the fruits of your labor in the long run.

To set up a personal budget, it is not necessary to have a personal computer or a laptop. You can use a notebook to jot down the expenses that are made on a daily basis. However, if you have a computer and are comfortable working with an Excel spreadsheet, then there is nothing like it.

Planning a Personal Budget

Collect all the recent utility and grocery bills and other recent statements or receipts. Do not forget to get your current pay slip. You would need a few blank sheets of paper, a pen and a calculator. This is the first step.

On one of the sheets, write your monthly gross income. Include all sources of income you have. For instance, if you have an income coming from a "trust", you have to put that also down. Sum up the total amount of money that you receive every month and this would be your total "monthly income".

On another sheet, put down your monthly expenses. You may categorize them into - housing (rent or housing loan, if any), food and grocery, utility bills (including telephone and electricity bills), credit card bills, medical bills, entertainment bills and amount that goes into savings and emergency funds. Sum up all the bills, other than the amount transferred for savings and insurances (if any). This would give you a rough idea about your monthly expenditure.

This is the last step in personal budgeting. Compare your expenses with your gross income. If the income is greater than expenditure, then it is great and time to rejoice. However, assess your expense and find out the areas where you can cut back and use that amount for starting a new recurring deposit, or increase the premium for your retirement plan. On the other hand, if the expense is greater than your gross income, you are in trouble. Identify where you spend most. For instance, if you happen to eat outside most of the nights, make plans to cook at home. If you have huge credit card bills, use your savings to clear of the bills. Else, your credit credentials would be affected. Remember, the rate of interest on credit card is more, if there is a payment lapse.

Cutting down your expenses would be bit difficult initially; in the long run, you would take pride in sticking to your budget. You would have an ample amounts of savings to fall back on a "rainy day". Once you clear your debts, you could plan for holidays and retirement and the hobbies you want to pursue. Remember, personal budgeting does not mean frugal living.