By: Joseph Kenny
The first step in beginning financial security is creating a personal budget. In order to plan a personal budget you have to know how much you possess and how much you owe. On the asset side of your life how much money do you have in your wallet? How much savings do you have in the bank? Do you own your own home or do you rent or do you have a mortgage on it? Do you own your car or do you have a loan on it?
These are all the initial items for consideration for building a personal budget. On the liability side you need to list the monthly car payment, the monthly rent or mortgage payment, utilities, charge accounts or credit card payments and other maintenance and upkeep expenses. You finished your basic homework now let's create a monthly personal budget.
A personal monthly budget is used to estimate what you earn and what you pay. It gives you an alert if you can plan in advance what each month you will earn in salary, dividend earnings and it will allow you to determine how much you will owe.
This is how I would set one up.
At the top of the list place the following categories on the left side of the sheet, projected monthly income, actual monthly income and on the right side place the categories, projected balance, actual balance, and difference, these will be handled after you total your debts. Under projected monthly income list the following subcategories, income1, extra income, and total monthly income.
Under the major category of actual monthly income list the following subcategories income1, extra income, and total monthly income. Beneath this header place the following categories, housing, transportation, insurance, food, entertainment, loans, taxes, savings or investments, gifts and donations and legal. Each of these categories will have projected cost, actual cost and difference columns added to each row within these major expense divisions. Each beginning of the month you must predict the next month's expenses, during the month as you pay those expenses enter that amount into the actual cost column. The end of the month you should enter the difference between the projected and actual cost into the difference column.
You remember those categories on the right side, projected balance, actual monthly income and difference? They are calculated by subtracting the total expenses from each balance. The difference is obtained from subtracting the actual from the projected. At the bottom the totals of the projected costs, actual costs and difference of the two are given. The maintenance of the personal budget as well as the decipherment of the spending trends should provide you with an invaluable tool to speed you towards financial success.
A personal budget set up in this manner can simplify the process of setting a certain amount of ones' salary or profits into a savings plan which is composed of simple interest savings, mutual fund investments for your retirement and a long range acquisition plan for real estate investment.