Subscribe Feed (RSS)Learning how you can organize your monthly income and expenses to create your own personal budget worksheet is challenging but easy.
Before you can create a budget that is unique to you, it’s important to understand the steps involved in the budgeting process. These steps include:
1. Initiate communication with family members
2. Consider your own unique personal or family situation
3. Set your goals
4. Gather and organize your financial data
5. Identify your income
6. Set your expense categories
7. Create and balance the budget
8. Monitor the budget actively
9. Adjust the budget as necessary
Now that you have accomplished the first three items on the list, you are ready to gather and organize your financial records. Examples of pertinent financial records are:
Detailed payslips, including salary, bonus, and commissions,
Checking account ledger
Most recent year’s completed tax return
Credit/debit card statements
Receipts for items purchased with cash
Home mortgage statements
Investment statements
Bank statements
Once you have gathered your relevant data, create a filing system for organization.
There are several systems that you can use, so find one that is easy for you. One
simple system is to use a box and 12 manila folders labeled for each month
(January-December). A budget sheet for each month is put in the front of each
folder. As bills, check statements, and receipts are received and paid each month,
they are entered on the budget sheet and the receipts are put into their respective
month’s folder.
If you are single, it will be much easier to create a system. It is more difficult when
couples use multiple checking accounts. When there is more than one person who
performs the financial record keeping, it is critical that communication be open and timely. The couple must be clear about who is paying which bills, the amount of each
bill, and whether the money spent and saved is consistent with the set goals.
The fourth step in the budgeting process is to identify your income sources and the
amount of income from each source. It’s important to identify all sources of income,
including salary, commissions, bonuses, interests, dividends, rental income, and so
on. If you have a set regular income per month, not including bonuses or unexpected
income, it’s a good idea to set your budget according to your base salary.
Bonuses, income from overtime pay, and unexpected income should be allocated as
additional savings for goals or for other “extra” items. Those funds should not be
allocated or relied on for regular monthly budget items — if the irregular income is
discontinued, you will not be able to cover your normal expenses. This can result in
the need for you to incur debt in order to pay your regular bills.
Having multiple incomes can impact the complexity of the budgeting process,
especially when couples receive paychecks at different times of the month. In this
situation, you must take care to properly track and coordinate both income sources
accurately.
Underestimate Income, Overestimate Expenses
If your income varies from month to month, set up a budget that underestimates (or
conservatively estimates) your income and overestimates your anticipated expenses.
Another option for budgeting with irregular income is to estimate a budget that uses
the least basic monthly income anticipated. You then budget your expenses under
that income amount.
In either example, in those months where you realize more income that you
budgeted, the difference can be allocated in several ways. One way is to put that
money aside into an emergency fund for those months where your income may be
less than anticipated. Once you have built a comfortable level of emergency funds,
you can create a plan to allocate all of the funds to “paying yourself first,” or a plan
that allocates some funds to your goals and some money for your current variable
“fun” expenses.
For example, suppose you expect a monthly income of P10,000, and you set your
monthly expenses at P9,500. You would put aside the extra P500 per month until you
reach a comfortable cushion. This will assist you if you end up having a month in
which your income is less than the P10,000 you expected.
Setting Your Expense Categories
There are two main expense categories: fixed and variable. Your challenge is to
make sure that the fixed categories are those that you need and not just want. The
variable categories are more often what you want rather than need!
Thus, one of the key concepts in setting expense categories is to first identify
Whether you’re essential spending, then set an honest and realistic priority schedule for these expenses. Your discretionary expenses should come after your essential expenses.
Pay Yourself First
The most important “need” category of expenses is YOU. In other words, before you
pay anyone else, you must pay yourself first. In the financial world, many have
successfully used this concept. Included in this category are:
Emergency funds
Retirement funds
Education funds
Determining Expenses
One way to determine categories is to review your bank and credit card statements and the cash expenditures log you completed.
The common monthly fixed expense categories are:
Housing
Automobile
Gas
Medical
Insurance
Education
Common variable expenses include:
Food and groceries
Clothing
Entertainment and recreation
Miscellaneous
As you create your fixed and variable expense categories, keep in mind some
guidelines based upon your take-home pay, provided by the Financial Planning
Association:
Savings (pay yourself first) — 10 percent
Housing — 30 percent
Transportation — 10 percent
Health care — 5 percent
Debt — no more than 10 percent
Groceries — 20 percent
Recreation and vacations — 5 percent
All other combined — 10 percent
It is important to remember that these are just guidelines to begin the budgeting
process. Your real goals should be to pay off all of your debt, as quickly as possible,
except for your home mortgage, which usually requires a long-term payout plan.
Don’t create a “Cash” or “ATM” category. One of the most common “budget busters”
is cash taken from the ATM machine! Cash expenditures can be very dangerous to
the integrity of the budgeting process. It is better not to use cash or take money out
via the ATM machine unless you are disciplined enough to write down exactly where
you spend the cash.
Tags: budgeting process, personal budget
