How to Create a Personal Budget

For years I looked at money as in and out on a weekly or monthly basis. My paycheck was deposited in the bank, then after bills and shopping the money was quickly gone. I would often complain about not having enough money for things that I wanted to do. Then I decided to make a personal budget to see where my money was going and plan ahead for the things I wanted to buy. Creating and maintaining a budget has helped me recognize where I was overspending (eating out) and how I could reach my goals (stop eating out and save money for that new laptop). Following are steps I used to create a personal budget that worked for me.

Step 1: Make a List

First, I wrote down all of my cash in and cash out, starting with paychecks and regular monthly bills. Then I listed all irregular expenses, such as money normally spent on entertainment, back-to-school shopping, birthday gifts, etc. I will emphasize here the importance of being honest. It does not make much sense to create an unrealistic budget when I knew I would be spending more. It took me a few days to get a realistic number, because I kept forgetting things, such as taxes and smaller items like trash pickup.

Step 2: Create a Spreadsheet

Once I had a realistic list, I used a Microsoft Excel spreadsheet for easy tracking and listed expenses month by month. This helped me to see that I will be spending more money in December for holiday gifts, so maybe I had to save a bit in November. I added an annual total column and a total row for each month by simply subtracting money out from money in. This gave me a great picture of how I spend money and even opened my eyes to just how much I was spending on certain things, like my morning coffee on the way to work ($3 every day vs. $780 a year makes a big impact).

Step 3: Make a Plan

Now that I had a realistic, month-by-month account of what I WAS spending, I needed to make a plan for how I wanted to spend in the future. A few subtractions from the expensive coffee and eating out funds and I could have a new laptop AND wireless anywhere internet? How about a new flat screen TV? Maybe a family vacation to Disney World? Suddenly, I felt rich, if only for a moment.

Step 4: Follow the Budget

I felt very accomplished having created my own budget, but sticking to it was a bit more difficult. Did I really HAVE to stop eating out? A few tweaks here and there and I was able to make a plan that truly worked for me. I used to spend most of my day tracking other people’s money and not paying much attention to my own. Now I am much more aware of my personal finances and am now working on a more long-term budget.

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