Personal Budget: Your First one
If you’re about to get your first wages or are just trying to get a handle on where exactly your money is going, you’re probably thinking about setting up a Personal budget. Here are a few helpful tips to get you started:
Estimate your wages. Use a calculator like the one at Paycheckcity.com to estimate what your take-home pay will look like. If you’re already receiving wages, you probably already know this. This will tell you how much money will be deposited in your bank account each pay period after taxes are taken out (a big part of managing a personal budget). Since monthly budgeting is usually easiest, if you are paid twice per month, multiply this amount by two so that you know how much you are taking home each month. If you are paid weekly, multiply by four, etc.
Establish your fixed expenses. Fixed expenses can really hurt any budget and will typically include your housing, utilities, phone bill and transportation (a car payment or public transportation pass). These are essential expenses and ones that you will have each month no matter what. In addition, these expenses should not fluctuate much, if at all. If you subtract this amount from your take-home pay, you’ll know how much you have left for variable expenses, savings and other common costs.
Estimate your variable expenses. Variable expenses are expenses that may come up once or twice a year but that should be worked into your monthly budget. For example, if your car insurance costs £600 twice a year (£1200 total for the year), you should set aside £100 each month (£1200/12 months) so that when that bill comes, you’re already prepared.
Your food expenses (both groceries and dining out) aren’t exactly the same as variable expenses but they are a large expense for most people and can fluctuate quite a bit month to month, so knowing the rough amount of money you spend in this part of your personal budget will also help you forecast from month to month. Food is also typically an easy category to cut costs in by.
Personal Budget: Saving something
Set aside money for savings. One of the most important things you can do with your budget is to “pay yourself first” by establishing a solid savings habit. A good rule of thumb is to save 10 to 15 percent of your paycheck. This will provide a good cushion for unexpected expenses such as car trouble or medical bills and can even grow into a downpayment for something like a car or house. Ten to 15 percent can be a hard goal to achieve, so if you can’t do that, start with whatever you can manage and make it a goal to work up to 10 to 15 percent.
Use the rest for discretionary spending. The rest of the money you have left from your wages can be used for whatever you want: travel, entertainment, household items, etc.
After a few months of tracking your budget, you may find that you’ll have to make modifications. If you move and your rent decreases, you may be able to save more. If you dine out quite a bit one month, you may have less money to spend on travel for the month. It’s not always easy, but working to stay within your budget will help you establish a solid financial foundation.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.
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Photo thanks to Keith Ramsey