Personal budgets: Getting started
What is a personal budget?
A budget is a breakdown of all your monthly income and expenses. It helps you keep track of where your money’s going; it also shows you if you are spending too much on something, and where you might have the chance to save.
If you’ve never looked at your own budget, you might think that you know well where you spend your money. Yet, you might be surprised what we can learn from seeing it all on paper, with a different perspective. It’s the stepping stone on the path of financial stability.
Make your own
This is part of a series of two articles on making your personal budget. You will need a month and a day to do this (don’t worry, it’s easy!).
This is your homework for proper budget-making:
- Take a large envelope and put it some place handy until the first of the month. Write on it “BUDGET”.
- During all of next month, I ask that you save proof of every single expense that you have: the home gas bill, phone, cell phone, gasoline, insurance, clothing, water, gym, rent, credit card bills, mortgage… you name it: to the envelope. If there is something that you pay automatically and therefore it doesn’t provide you a receipt, write the name on a piece of paper, the amount you pay, and put it in the envelope.
- Advice: Every week, look at your wallet or purse, take out all the receipts and stuff them in there, too. Do you eat out? Yes, you’ll need those receipts as well. Even if you charge everything to cards, it’s good to keep a paper trail for making the budget.
What if I pay my car and home insurance every three months? Then divide the amount by 3, write the result on a piece of paper and then… yes, to the envelope!
What if I can’t find a receipt? Then go online, to see if you paid with a card, and jot that on a piece of paper, saying what it was. If you paid with cash, write the most approximate amount that you remember.
The idea is for you to have as much information as possible about the things on which you have spent your money. The more information you have, the more accurate your personal budget will be. Please keep that in mind, and start keeping track of those bits of paper. They are important!
When you have that envelope full of a month’s worth of receipts, this is what you’ll be doing next!