|This article is a part of Wikinvest's Personal Finance section and Guide to Investing. Please contribute or edit to improve it.|
For more information on budgets, click here
A Personal Budget is a plan to manage money effectively by keeping track of income changes and monitoring expenses.
Everyone has to balance spending between housing, health care, car, recreation and many other things. A budget is a useful tool to balance these needs and avoid getting into debt.
article titlebold textitalic text'italic text==Setting up a Personal Budget== Goal setting is the first step to creating a budget. Having a long term vision defines the kind of savings plan that someone might have, and hence the savings per month. The most common goals set are buying a house, or a car or becoming a millionaire by a certain age. Others also include retirement planning and savings for college education for their children. A goal defines the amount of savings, hence defining the nature of the budget.
In order to assess a budget, main points of consideration are assets, liabilities, sources of income and expenses. Assets could be a car, a house or money in the bank. Liabilities could include debt, loan obligations, rent payment or mortgage. The later two form the basis of any personal budget as advised by most financial planners. That helps in understanding how to interpret a budget and derive use from it.
Things to consider while structuring the budget:
Here's a good example of what a budget should look like:
|Classification||Expected amount (monthly)||Actual Amount (monthly)|
|Income through primary wage|
|Income through interest|
|Utilities and Food|
|Health and Medication|
|Recreation and Entertainment|
Most financial sites provide free tools and tutorials to kickstart personal budgets. Some of the popular ones on the internet provide vertically integrated plans for people to understand various aspects of personal finance, evaluate savings and debt and set up a plan.
The term "balancing a budget" is used by federal and state governments meaning that spending cannot exceed the revenue that has been collected. That implies old debts need to be paid off, without taking on more debt. A balanced budget is important because, by spending more money than that is available, individuals can go bankrupt. Thus, it is important to constantly monitor debt and expenses in order to stay out of debt.
There are several ways to monitor and balance money:
Apart from the monitoring techniques suggested, there are some good practices recommended by financial advisers.
Personal Budgeting can make someone with limited or no prior budgeting experience feel 'squeezed,' especially if their partner is a more committed budgeter. Thus, some people may be wary when it comes to setting up a budget for their households. Major points to talk about with your partner (or a trusted friend if you are having trouble with your own budget discipine):