Monday, May 21, 2007

Create a Personal Budget in Only a Few Short Steps

One of the biggest resources to use when working on your personal finances is a personal budget. Budgets just aren't an effective and necessary tool for businesses, they are also vital for individuals and families as well. Below, you will find some easy to follow instructions on how to create a personal budget in a few short steps.

First things first, grab a pen, piece of paper, calculator or head to your computer. The first thing you want to do is create a list of items (expenses) that must be paid each month. These items usually include rent, car loans, auto, life and health insurance, food, gas, entertainment, utilities, child care, clothing, etc. For many families, there are plenty of monthly expenses and the interesting thing is that for most families this will be the first time that you see all the money that you spend each month. Once you have all your expenses, add them all up and name this amount Total Monthly Expenses.

Secondly, figure out your entire income for the month. This will obviously include you and your spouse's income, any investments that you may have that you receive payment from, any odd jobs that you do such as selling items on Ebay, etc. Once you have your entire month's income, add it all up and name it Total Monthly Income.

Finally take your total monthly expenses and subtract it from your total monthly income. Hopefully you will come out with extra money. That money is anything extra after you have paid all your expenses for the month. The more money you have, the more you can save, as well as the more money you can spend. However, if you are in the red, meaning you have more expenses per month than income, you are in debt and can be in a lot of financial trouble.

With a budget you can easily realize your financial health. You can plainly see which items you spend the most money on per month and determine if some of them are necessary. If you want to save a specific amount of money, budgets are a way to easily figure out which items are necessary and which items are deemed frivolous.

Obviously every person's budget will be different, but creating a budget is one of the cardinal rules of responsible personal finance.

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