Four Steps to Properly Creating a Personal Budget

Budgeting is usually not very fun. It can be hard to say “no" to small impulse purchases. However, creating and sticking to a budget can help secure your financial stability. There are many guides and tips out there, but a lot of them can be confusing or unhelpful. Budgeting doesn't mean you have to cut all of the fun out of your life. It is just a tool to keep your spending to a reasonable level. Here are a few steps to take in creating and maintaining your personal budget.


1. First, record your spending habits

Pick a period of time you would like to set your budget to last. This is usually a recurring monthly budget, but you can base it on your paycheck cycle too. Once you've decided when your budget will reset, start recording your purchases over the chosen period of time. Record everything you buy from rent to groceries to movie tickets. This will allow you to see how much you're spending and where. It is especially useful if you have multiple bank accounts and credit cards. After the set period is over, you can use your spending log as the basis for your budget.

2. Next, choose what you can cut back on

Go through your spending log and decide what you can cut back on. Mark out your essentials first. You probably can't change your rent or mortgage payment. You should also set aside a decent amount for groceries, gas and other necessities. Then, you can choose what frivolous expenses to cut back on. Maybe you should stop eating out so much or stop spending so much on movies or video games. You can still have money set aside for fun and games, but make sure it's at an affordable level.

3. Create specific categories with set spending limits

This is often referred to as the envelope system. Create categories for all of your expenses. Rent, utilities and all other essential expenses can go into one category. You can make food another and so on. You can divide up your expenses however you want. Having separate small budgets for each area of your life will help you manage your budget more efficiently. Instead of obsessing over your monthly budget with every purchase, you can focus on the specific spending limits you've set in each category. It will reduce your stress and keep you on track.

4. Remember to save for emergency expenses and special purchases

Saving money is also important — just in case. Having a decent savings account can help you in many situations. When an emergency expense pops up, you'll be able to cover it with little issue. Saving regularly also lets you splurge on bigger purchases every once in a while. Maybe you desperately want to see your favorite singer's concert or a purchase a brand new game console. With your savings, you'll be able to afford the occasional splurge without breaking the bank.

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