Creating A Personal Budget 101

The alluring quest to attain a state of financial freedom begins with the creation of your personal budget. Knowledge of the specific amount of money that is coming into and out of your possession will allow for a replacement of your daily fiscal worries with high financial self-esteem. You will notice this newfound self-esteem affecting a number of other areas that have potential benefits for your life, such as the comfort of discovering that you are better off than you expected, the sudden realization that you need to cut certain spending habits, or the ability to project how long it will take for you to save enough money for certain goals.

Phase 1: Monthly Income – Static Expenses = Available Money
Creating your personal budget sheet, like most accomplishments in life, has a beginning. Know and write down all of your incoming money sources spanning the timeframe of any given month. Then write down all of your static expenses for the month. “Static Expenses” consist of monthly expenses that do not change, including rent/mortgage, minimum car payments, minimum credit card bill payments, cable bills, phone bills, gym membership fees, and any others that may pertain to you. Total the number of your static expenses and deduct that amount from your Monthly Income.

Phase 2: Generous Estimation
The second major step in the personal budget process is what I like to call the Generous Estimation Phase. The key word here is “Generous,” because overestimating is –always- better than the chance that you may be underestimating the money you need or spend. Think about your daily activities. Do you drive your car to and from work? Take a road trip an average of two weekends a month? Calculate the estimated cost of your gas usage. Want to set aside a certain amount each month for entertainment such as movies, eating out, or bars? Write down what you think you would spend on that each month. How much do you eat? Write it down. Here is a list of considerations for your estimates:

- Gas Money
- Entertainment Money (Eating out, bars, movies, etc)
- Haircut Money
- Miscellaneous Spending (Always plan for surprises!)
- Travel Expenses
- Gift Money
- Clothes Shopping

Phase 3: Saving or Investing
After you have subtracted both your static and estimated expenses from your monthly income, you will hopefully have money left over. If you don’t, it may be time to consider a change in spending habits. The most important part of a personal budget is that you are able to see what areas of your life can afford a change in order to increase the amount of your Working Capital. Limit the nights you eat out, cancel memberships you don’t use often, and keep your unnecessary shopping to a minimum so that you can take full advantage of all the money you can to either save or invest. Saving or investing your money is the core principal of being able to free yourself financially.