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Budgeting your personal finances is essential to managing your money, your financial well-being, and achieving your financial goals.
A household ledger or personal budget is a table in which you compare your income to your expenses.
- A budget helps you monitor your personal cash flow and track how and where you spend your money.
- Budgeting is an important part of any long-term money management strategy.
- Creating a budget book is easier than you think.
In this tutorial we’ll show you how to create a budget book for your needs.
Contents
Why should I create a budget book?
Income – regular cash flow – includes:
Expenses – regular outflows of money – include:
Not everyone is familiar with the terms ledger and budget, but they are essential when it comes to managing your own money. For example, did you know that governments create a national “fiscal budget” to structure their spending? Just as businesses need to plan how they will manage their finances, it is important to take the time to create a personal budget for yourself and your family. This way, you can always keep track of your income and expenses and also see how much money you can potentially save and invest.
Why should I create a budget book?
Finances are one of the main causes of stress for many people. Creating and keeping a budget can eliminate many of the fears that dealing with money can cause you. How can you create a budget book?
It is important to make your own budget for yourself and your family. This way you always keep track of all your expenses and income.
Make a list
The easiest way to make a list is to take some time and think about what your income is and what you actually spend money on – that is, what your expenses are or how you use your assets for liabilities. Where is it used? Create two columns and write two lists. You can also copy the list below. You can also find many free spreadsheets online where you can adjust your budget. There is no right or wrong way to make them, just make the tables according to your needs.
Income – regular cash flow – includes:
- Salary and wages from regular work
- Bonuses you receive at work.
- Income from side businesses or additional jobs
- Income from investments (dividends and shares)
- Dues (eg royalties from self-authored books)
- You get royalties for using your intellectual property (such as for music you write yourself).
- Rental income from condominium
- Assistance paid by the state (such as family allowance or pension)
- Financial gifts (eg from relatives)
- Any kind of regular income
Expenses – regular outflows of money – include:
- Rent payments, operating expenses, loan installment payments
- Dues and installments of any kind of debt (eg overdrafts from your bank account or lease installments)
- Operating expenses (electricity, water, heating, etc.)
- Internet/Telephone/TV
- School and study fees
- Groceries
- Treatment
- clothing
- Insurance premium
- Outside of entertainment and food
- Fitness
- Travel
- Furniture
- Personal care (cosmetics, vitamins, etc.)
- Anything you spend money on.
Income and expenses
After creating your lists, you’ll need your bank and credit card statements. If you’re averaging your expenses over a month (or multiple), use the amount you usually spend as a reference. Review all transactions – incoming and outgoing – recorded in these statements. For example, don’t forget to record expenses that are due quarterly or semi-annually instead of monthly. Figure out what you typically spend on each item each month and write down those amounts. Then you add up your income and your expenses.
Calculating your net income
Now you subtract the total of your expenses from the total of your income and write down the amount, regardless of whether it is positive or negative. If this amount is positive, it means you are not spending all or more of your income.
If you keep a budget and stick to your resolutions, you can reduce your fear of dealing with money.
Cost analysis
Now is the time to take a closer look at your expenses. Are you spending more than you earn? So, are you “busting” your budget? Take a closer look at what you’re overspending on and where you can cut back. What changes can you make to spend less money? Controlling your spending early on will save you a lot of trouble later. You should identify costs that are not really necessary or where you can at least switch to a cheaper alternative, eg. Of course, it also depends on your personal situation, but in principle you should earn – at least a little – more than you spend.
Invest your extra income.
Did your expense analysis come up positive and do you still have money left over at the end of the month? Congratulations! Now you can start figuring out how to invest your money to grow it. In our next article, you will learn how you can start investing money.