Have you been struggling with the design of your personal budget?
People today seem to use such complicated budgets to stay ahead of their finances. Some of these look like the plans for a mission to Mars, instead of a simple income management plan.
Do you really need such complex tables, charts, and graphs to stay in control of your personal finances?
A personal budget is one that can be as simple as addition and subtraction, nothing more. You don’t need huge equations, complicated charts, or any of the other trappings you think you need. In reality, all you have to do is take into account two things – how much money comes in, and how much goes out.
Yes, it is really as simple as that.
Constructing your personal budget
When you think about creating a personal budget, you have to figure out your sources of income first. Then it's time to think about expenses.
The best way to record your income and expenses is to build a simple table. This may seem daunting at first, but it's not that difficult once you start. And when the table is complete the extra control you'll have over your finances is invaluable.
Here's a template example to get you started.
|Pay from Job 1||A||Rent||D|
|Pay from Job 2||B||Utilities||E|
|TOTAL INCOME||=SUM(A:C)||TOTAL EXPENSES||=SUM(D:F)|
|BALANCE||Income - Expenses|
You can use the above layout in any spreadsheet programme to build your personal budget.
In your INCOME column, list every source of income that you have. This includes your normal job’s pay, as well as any additional work and savings income. If you have any other income sources, you can always add an additional row. In the Amount column, write in just how much you get each month from each of these. Add them all together using a formula in your spreadsheet:
Put this formula into your TOTAL INCOME field.
For the expenses section, take a look at all your bills. Put in things like your rent, car payments, debt payments, credit card bills (take the average over a few months to give the most comprehensive figure), phone bills, utility bills and more. You may want to add another row for day-to-day spending on food, drinks and other items.
Whatever costs you money each month, put it in the Expenses column. In the corresponding Amount column, write down the figures again. Add them together using the spreadsheet and write out your total expenses per month.
Now, in the BALANCE field, subtract your total expenses from your total income. If the answer is negative, you are spending more than you are earning. Take a look at your monthly expenses to see what you could cut back on (do you really need 20GB of mobile data at £100 a month?).
The best thing about organizing your expenses like this is that you get to see exactly what is out of proportion and fix it.
The budget goal
The goal here is to make your BALANCE field positive each month. By cutting down on certain things (such as using less electricity and gas each month, for example), you can ensure that you start spending less than you earn.
In time, you can start depositing a small amount into a savings account each month too, as the BALANCE becomes more and more positive.
You’ll soon realize you have more money to spend on the things you want to and enjoy doing, and that you’ll spend less time worrying about what could go wrong with your personal finances. Get started on your simple budget plan today and watch as the world finally falls into place for you financially!
If you don't have the time to put together your own spreadsheet, here's one we prepared earlier in Excel and PDF form:
If you don't want to build a budget the old fashioned way, there are also plenty of apps out there to help you manage your day-to-day finances including You Need A Budget (YNAB), Goodbudget, OnTrees, Wally and Money Dashboard.