One of the responsibilities we inherit as an adult is managing our personal finances. The problem with this notion is that it isn’t typically taught as part of the nationwide curriculum. Even if you did get to learn about balancing a budget in a classroom, it doesn’t mean you learned the actual reality of that skill. You would have been handed arbitrary values with a fake scenario designed to teach concepts. Even then it would not encompass all of the different intricacies of our income and expenses in real life. Let us take a small walk through the basics again (or for the first time) with personal budgets.
What is a Budget Anyways?
A budget is a proactive approach to quantify the money coming in and the money going out over a specific period of time.
Balancing the Budget
When all expenditures are equal to all revenue/income then you have a balanced budget. In our instance of personal budgets, I would say any budget that has a surplus would pass as balanced too. You may have heard the statement, “staying out of the red” which means avoiding overspending and accruing enough debt that your bottom line is in the negative. We are attempting to avoid the budget deficits by mapping out our spending.
In order to do this we identify wasteful spending, change our habits as needed to fit our financial situations, and create budget goals.
At the beginning, this can be quite stressful, BUT I PROMISE that it will be enlightening. It is essential for you to see the breakdown of your expenses and understand how things add up. Balancing a personal budget will give you a sense of financial clarity.
Start young, learn quick, and take control of your future financial success.
The General process
1. Keep it Simple – Start out small and expand once you get the basics
2. Determine Income – Paycheck, stipends, other streams of money
3. Determine Reoccurring Expenses – Rent, Utilities, & Subscriptions
4. Estimate your Other Spending – Gas, Food, Entertainment, & Misc
5. Watch Actual Spending – Check bank and credit card statements
6. Assess for Future – Where did you overspend or under spend
7. Make Changes – Habits to kick? Start saving money?
NOTE to Help: Define Spending Categories
To best determine your habits it is encouraged to define specific categories. These categories will help provide themes of your spending habits. Here are the categories I use:
- Bills and Utilities
- Auto and Transport
- Food and Dining
- Health and Fitness
- Gifts and Donations
You can dig deeper into your spending habits by creating subcategories. For example, in my budget the Food and Dining can be broken down as Groceries, Fast Food, Delivery, Dining Out, Coffee, or Alcohol/Bar. This can give insights at a deeper level.
Budgeting Methods or Styles
Most people I know have a preference on how they do things and a budget is no different. Many people, such as myself, use spreadsheets in either excel, google sheets, or another software such as QuickBooks.
To help here is my free Budget Template in Google Sheets
- Old school – writing it down on paper…With the many tools available I would encourage you to use a different method.
- Use an online tool or spreadsheet (option above)
- Envelope Process
- Outlined nicely at Money Crashers but basically use the categories you define to create envelopes that contain only the amount you budget to spend in that category.
- Zero-Based Budget
- The absolute balanced budget…in the end it needs to be ZERO dollars. This means putting any extra into savings or “paying” yourself.
- Balanced Money Formula – Introduced by Elizabeth Warren
- 50% of budget on needs, 30% on wants, and 20% on debt reduction or savings.
- Cash Only
- A psychological method of handing over your money. Being cognizant of your physical money makes it easy to realize where it is actually going.
Check your accounts twice a month at the same time each month
Mine is the 15th and the last day of every month
Aim to live below your means
If you only make $30k each year then don’t attempt to live in a luxury apartment that costs $2k a month.
DON’T AVOID LOOKING AT YOUR FINANCES
I will tell you first hand…assuming you will be ok only sets you up for failure. Feel free to check out my review of 2016 and see where I failed!
Again here is the link to my free Budget Template in