Effective Personal Budgeting

Simply put, budgeting is a way of organising and prioritising what you do with your money.

It doesn't matter how much or how little money you make, budgeting is useful for anyone and everyone.

 
There are plenty of worthwhile reasons to budget, such as eliminating debt, saving for what's important to you, taking control of your money - and perhaps the best one of all - working your way, step by step, towards financial freedom.

There are lots of different ways to budget - pencil and paper, spreadsheets and budgeting or money management software.

Everybody has their preference. I know I have mine. Regardless of how you choose to budget the process is still essentially the same. The only real difference is the time that it takes to achieve the outcome - an effective, and realistic budget.

If you don't have a budget, there is no better time to take control of your money than now.

WHAT A BUDGET DOES

A budget starts with your income and core expenses. From there you can choose how detailed (and in turn accurate) you want your budget to be.

You most likely know these core income and expenses off the top of your head.

The money you have to work with is your income. In most cases this will be your salary, but can include any other sources of income, such as income from investments, distributions or social security. Even if your income is variable, you will only have so much income to work with.

Then come your core expenses, which are often the largest. These could include rent, mortgage repayments, food, petrol, phone and other costs.
These need to be paid, and should be the first things you include in your budget - they are priority #1.

The most basic goal of your budget is to spend less than you earn. Any surplus can be put towards your other goals or priorities.

If you have any debt, you should add it as a priority expense. Don't leave it as something that you'll 'get around to' when you have some money left over, make it priority #2.
Any personal debt that you have is only going to hold you back. This includes credit cards, personal loans, interest free (higher purchase) finance, and car loans. These can be expensive forms of credit, to which one rule applies - borrowing money always costs you money!   

1. Set a goal

What is it that you really want? Maybe you want to

• Travel
• Retire early
  
• Start a Family
• Build an Investment Portfolio
• Annihilate any debt
  
• Get a new car
  
• Buy your First House

Any goal that you set will be an important motivator for you sticking to your budget.  Add your goal/s to you budget -  this will let you making savings for this goal, and achieving it a greater priority than if you had not added it to your budget.

It's important to remember that being on a budget does not mean that you have to do without! This is, of course, within reason.

The whole idea of having a budget is so that you can plan to spend your money on what you really want, rather than spending a bit here and bit there and not getting anywhere - ending up with a pile of little this-and-thats rather than any of the things that you really wanted.

2. Get Started

This is often the hardest step with anything, not just budgeting.
Get the ball rolling and put your financial plan (that's what a budget is) in motion. Your goals should be a great incentive for you to get started.

I use budgeting software to take care of my budget and expense tracking. Whatever method you choose, it is important to make sure it is easy to keep up-to-date.