Managing your own money should be like riding a bike in that once you have learned it, you will not forget it. The point of having a personal financial budget is to always have a plan with your money and prevent financial problems from happening. There are also those who form budgets to help themselves get out of debt. However, the practice of having a personal budget does not have to be just a desperate measure, but a sensible way to handle money. Here is a simple way on how to create a personal financial budget.
Consider the adequacy of your income
You must remember though that a lot of people would go on and have a budget, then fail later on. There are a lot of reasons for this, but the main one is that they focus on their spending or expenses while not considering the amount of money they earn each month. There are a lot of cases where everything has been listed down and estimated to a tee, only to find out that it is not working out anyway. You cannot pull the belt in too tightly, but being loose is also being half-hearted about budgeting.
Earn more than you spend
The first thing to remember in having a budget is to bear in mind the golden rule of personal finance, which is to earn more than you spend and invest the difference. It seems like such a simple statement, but the amount of people who do not get its true significance is quite staggering. For most people, they earn money from their work salary or compensation. Some people also earns from passive income through their business and other investments. Expenses are mostly composed of telephone and electric bills, food, clothing, medical and educational, and other necessities, as well as certain amenities depending on the individual in question. Lifestyle plays a major factor in the said difference, which may then be squandered, saved, or invested. Your total annual income is your set limit, and going beyond it usually means that you will be in debt. That is a simplistic way of looking at it.
Organize your expenses
You must list down all of your regular expenses like bills and other payables. Through this process, you can then figure out what to keep, throw away, and replace. It is obvious that whatever you may not need should just be taken out of the equation, despite your personal feelings. Take the high priority necessities and take their total as your bare minimum budget. Whatever comes afterwards are what you have to decide to spend on, which will require both decisiveness and self-discipline.
Secure your savings
An allotted amount should serve as your savings, and you must put it into a secure bank account right away. No one is to touch that money, not even you, if you want to save it up. This is the first step to building up your personal wealth, and you can branch off to other financial plans from here. But take the first rule of business to heart, which is to always protect your investments.
Monitor your cash flow
The most labor intensive part of having your own budget is to track every single expense. What you do with your cash in hand must never go unaccounted, so record every bit of expense, no matter how small. This lets you keep a closer eye on your spending and also to know what you are spending on the most. It is good to put every expense into appropriate categories like food, rent, electricity, phone, water, and so on. This way, you know where to cut back when you need to.