A personal budget isn’t a piggy bank or a system of prohibitions on certain expenditures, not a scramble, but a balanced plan for saving, accumulating, and judiciously distributing income and expenses. Thanks to such a plan, you can achieve your financial goals.
Of course, making and maintaining a personal budget isn’t the easiest task. You will have to devote time, reduce spending on optional categories, and master the science of self-discipline. But the result is definitely worth all the effort. Let’s learn about how to properly manage your personal budget, what you can save on, and how to better distribute expenses.
What Is a Personal Budget?
What is a budget? It’s a systematic record of income and expenses. A budget, as a rule, is prepared for the future, i.e. we are talking about both projected income and estimated expenditures. And reports on the expenditures made and revenues received are already the execution of the budget.
And what is a personal budget, and how does it differ from, for example, the state budget? In essence, the difference is only in scale. Otherwise, it’s the same structured record of income, expenditures, debts, and savings. The main thing here is one thing in common: any budget must include all monetary receipts and expenditures without exception.
Since a budget is a financial document that focuses on future spending and income, planning is an integral part of the budgeting procedure. Both expenses and revenues are an integral part of the budgeting procedure. The skill of financial planning is the most important skill aspect to creating a personal budget that is logical and transparent. It’s necessary to find the right balance between different items of expenditure and current income, to put aside for the future what you can’t afford now.
Any budget is always someone’s, whether it’s a specific person or even an abstract concept: state, collective, family. So you shouldn’t confuse them by intertwining different items of income from a personal budget and some public one, for example. Also, don’t confuse the personal budget and the family budget, because the family doesn’t live only by your aspirations, but each member of the family has its legitimate interests.
When budgeting, the most important thing is to keep it balanced, not resorting to excessive savings and, if possible, avoiding wasteful spending that you can do without.
The emergence and spread of the practice of personal financial budgeting is a step towards increasing financial literacy and shared responsibility in society. By the way, a study that was conducted among millionaires in the United States showed that the richest people in the country made personal budgets even when they had average incomes.
Simply put, if you want to become a millionaire, learn to treat money responsibly. After all, only if you manage small sums of money wisely will you be able to manage larger sums.
Why Keep a Personal Budget?
But why add extra responsibilities to yourself? What is the point of personal budgeting? Is there really nothing else to spend your time on?
Many people are not accustomed to planning their lives, and consider personal finances and budgets only as a means of financing already existing needs and are ready to sacrifice them if money starts to be in short supply. This is called intuitive budgeting.
But it’s precisely this approach that prevents people from developing and growing in both their needs and opportunities. And making a personal budget helps to overcome the fundamental problem of limiting one’s own needs. It disciplines you]. Therefore, systematic planning is more necessary for people with modest income. And in the pages of this article we will try to understand why.
It should be recognized that in life we are much more likely to experience a shortage of money than an excess of it. Moreover, each person, each family has its own scale of spending. As the saying goes, some people’s cabbage soup is empty, and some people’s pearls are small. Both are a sign of a lack of money, and it doesn’t matter what for: to buy new jeans or to buy a mega-expensive yacht.
Budgeting allows you to realize your own financial scale, to understand what you can afford at the moment, and what expenses are better deferred to future periods.
All of us, whether we make personal budgets or not, admit to wasted spending on unnecessary things in our lives. It doesn’t matter as much whether it’s a candy bar before a meal or another printed T-shirt that is unlikely to be worn due to its “freakishness.” It’s practically impossible to completely avoid spending, like playing at Bizzo NZD Casino or a Netflix subscription, but budgeting allows you to reduce it.
Lack of financial planning often leads to a situation where you suddenly run out of money. The last paycheck is over, the next one and a half weeks away, and there are no savings. What is the solution? Borrow. This is now easy, but with the return may be a problem. After all, it means cutting back on spending in the next period, when the expected receipts come in.
Principles of Personal Budgeting
Income Should Always Be Greater Than Current Expenses
Of course, this is the crystal dream of any entrepreneur and the main rule of personal budgeting. However, to achieve it, there is no need to attend any financial planning courses or invite expensive consultants. It’s necessary to reduce costs.
The same is true for personal budgets: it’s worth taking a close look at your current expenses. It’s quite possible that a number of little things can be abandoned. And after that, take a look at the “Total” column. According to the results it may turn out that you saved 10-12 percent.
Try to Increase Your Sources of Income
Even if you call yourself the proud word “entrepreneur,” it doesn’t mean that you are protected from financial blows. It’s quite possible that in parallel you will have to work part-time, for example, as a tutor, or to rent a house.
Passive income in such cases is extremely useful. By the way, you can get it on a debit payment card with cashback and interest on the account balance. However, you will need to take care that there are several sources of income, otherwise the amounts will be miserable.
First Savings, Then Spending
Your financial goal should never be forgotten for a moment. When making a budget, you will determine how much you need to save each month so that the cumulative savings will form within a given time frame. When you receive income, take this amount out of the flow and put it on deposit or in the financial instrument that is used for that purpose. Only then distribute the balance to current needs.
The redistribution must be done from the end (according to importance). Let’s say you need to make a necessary and expensive purchase. The funds should not be taken from the deferred, but by cutting the least important items. Otherwise it will not be possible to save up for the original goal.