Putting together a personal budget
Building a budget is neither complex nor difficult. A series of simple steps will get you started.
First, you must identify your disposable income. This refers to the income left over after paying your taxes. From this amount, you should deduct those fixed costs such as rent or mortgage, car payment, insurance, loan notes, etc., that remain the same month after month.
The next step is slightly more complex, as you need to forecast as accurately as possible, your ongoing variable costs, such as groceries, telephone, celular phone, and the like. What is left over after deducting these is termed discretionary income. This is the money you have left over after covering all your essential expenses, which can be used for savings, entertainment, vacation planning, gifts, etc.
It is highly recommended that you set aside in savings, a percentage of your discretionary income as a contingency fund, in case of unforeseen expenses such as car breakdowns, illnesses or home repairs (I recommend a minimum of 10% of your disposable income). That will allow you to cover them (or at least lessen the impact), without severely affecting your lifestyle. Now take what is left, and divide it up among the sundry expenses that may arise. Perhaps you’ll want to set aside $40 a week for entertainment, which might include a drink after work on Friday afternoon, a movie or a night at the county fair… all discretionary expenses, without which you can still meet your obligations. An upcoming birthday for your favorite nephew, a subscription to your favorite magazine, or a good bottle of wine can all be planned for at this time.
Review your budget and try to see if you have forgotten anything, and adjust it as necessary. Once you have this completed, you need to give it a chance, by following it as rigidly as possible. As you go along, you may identify other costs that you hadn’t thought of, and your budget can be adjusted to accommodate them.
A suggestion I would make is this: if you find that you don’t spend the amount you have allocated for one of your discretionary expenses, such as entertainment, don’t “roll it over”, to increase your allocation for the following month. Instead, add it to your savings. This has the benefit of leaving you better prepared for unexpected costs, and also helps you build the mindset for adhering to your budget.