Personal budget: Here's how you create one

Personal budget: Here’s how you create one


Budgeting is one of the most important skills a financially aware person has. You need to actively keep track of your income and plan your expenses and savings accordingly to lead a life free of money problems. Making a personal budget every now and then helps you do just that. Without one, you will find yourself constantly being lost in the mess of figures and data with no organization whatsoever.

So how exactly do you create a budget for yourself? This article will streamline all the necessary things and provide a step by step guide to creating a personal budget.

personal budget

How much do you earn?

The first step budgeting is knowing how much money is coming in and from where. This can become complicated real quick, especially if you have multiple sources of income. To make things, it is probably a good idea to gather all relevant documents and statements from. These could be your bank statements, tax documents, paychecks, and so on. After you have figured out what documents are needed and collected them all, you should now add all your income sources together.

Be careful not to overestimate your income. People often forget to deduct tax amounts, pension/ provident fund deductions from their total income. It’s more common than you think so always recheck that you have calculated your actual net income. You will need this amount for your personal budget.

How much do you spend?

The next step to creating a personal budget, as you’ve probably guessed, is to track your expenses. This is a little bit more tricky than income. Most of us don’t keep an expenditure log (Side tip: It’s a very good idea to keep one) and even if we do, tracking every little spending is near to impossible. It’s alright though, you don’t need an exact amount.

Expenditure can be divided into two sectors, treating them as such will help you calculate your total spending much more easily.

Personal budget: Here's how you create one

Fixed expenses

These are the things you routinely spend on every month. It will include things such as utility payments, subscription payments, rent, mortgage, and so on. If you have children, their school fees, or maybe even your own school fees also come under this. Fixed expenses are relatively easy to track. If you don’t know the amount off the top of your head, refer to your bank statements or search for the fees online. Make a list of everything and add them up to the total monthly amount

Variable Expenses

These are things you don’t spend a specific monthly amount every month. Your personal budget will need to account for this spending too. It includes things like lunch money, groceries, gas, coffee shop visits, and so on. Since people here in Nepal mostly use cash for everyday stuff, these can be pretty hard to track. Nevertheless, try to come up with an estimate. Make it as accurate as possible and add the amount to the total of fixed expenses.

Why do you want out of your personal budget?

After you have an idea of what you spend and how much you earn, you now have the tools to work towards your goals. Are you in debt, or do you have a lot of surpluses? Are there expenses you want to cut off on? Are there things you want to invest in going forward? All these are questions you need to ask yourself as you compare your income and expenditure.

When you have decided what you want out of your personal budget, you are ready to plan out the months ahead in a way that suits you and your bank account.

Personal budget: Here's how you create one

Making a plan for your budget

Now, it is time to make a plan according to your goals. You will have to balance your income, expenditure, and leave room for savings. If your expenses are more than your income, first trim down on variable expenses. If that doesn’t cover it then you might have to rethink your fixed expenses too. If you have problem-saving money then this article might help.

Similarly, if your income is more than your expenditure, think of how you want to use the extra money. Do you want to fix the amount and get healthy interest, or do you want to invest the money on something? Maybe you have some long term goal you want to save for, plan with everything in your mind.

Personal budget: Here's how you create one

Jot down everything

It is always a good idea to have your personal budget in writing so that you can come back to it when need be. Note down the things you want to cut on, the things you want to invest in, and balance the numbers out. Keep it simple, but make it comprehensive. Your budget should include your long term goals, list of expenditures, and things you want to cut on.

After noting your personal budget somewhere, you can stick it to the fridge or keep it as a sticky note on your laptop or anywhere you prefer. You should try to make it easily accessible because you want to visit it regularly and stay on track.